Question

PROBLEM 2 Use the following information to answer questions a. and b. Suppose a company expects $15,000,000 in overhead during the year and expects to use 100,000 machine hours. Product X uses 4,000 machine hours, Product Y uses 2,000 machine hours, and Product Z uses 3,000 machine hours during the month of January, which is the company's first month in business. a. How much overhead will be applied to each product during January assuming that the company uses machine hours as the cost driver? b. Now, assume that all units that were started in January were finished in January. 60% of the units of Product X were sold during January, 40% of the units of Y were sold during January, and 25% of the units of Product Z were sold during January. How much of the overhead applied will be in inventory and how much will be in cost of goods sold?

Answer 1

ANSWER

a)

Overhead rate : 15000000/100000 = 150 per machine hour

Overhead applied :

Product X = 4000*150 = 600000

Product Y = 2000*150 = 300000

Product Z = 3000*150 = 450000

b)

Overhead applied in ending inventory and cost of goods sold :

	Ending inventory	Cost of goods sold
Product X	240000	360000
Product Y	180000	120000
Product Z	337500	112500
Total	757500	592500

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