Question

Ecola Company uses a job order costing system. Manufacturing overhead is applied on the basis of direct labor cost. Total manufacturing overhead was estimated to be $214,500 for the year; direct labor was estimated to total $195,000.

Raw Materials Inventory Work in Process Inventory Finished Goods Inventory (1/1) $ 16,000 $ 32,000 $ 44,000 (12/31) $13,000 $25,000 $35,000 The following transactions have occurred during the year. Raw materials purchases Direct materials used Direct labor Indirect materials used Indirect labor Factory equipment depreciation Factory rent Factory utilities Other factory costs $160,000 $ 91,000 $ 165,000 $ 19,000 $ 22,000 $ 31,000 $ 18,000 $ 14,500 $ 11,500

(a) Calculate the predetermined overhead rate.

(b) Calculate cost of goods manufactured.

(c) Calculate the over- or underapplied overhead. (Input the amount as positive value.)

(d) Calculate adjusted cost of goods sold.

Answer 1

Solution a:

Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labor cost

= $214,500 / $195,000 = 110% of DL cost

Solution b:

Ecola company
Schedule of cost of goods manufactured
Particulars	Amount
Direct material used	$91,000.00
Direct Labor	$165,000.00
Manufacturing overhead Applied	$181,500.00
Total manufacturing costs	$437,500.00
Add: Opening WIP	$32,000.00
Total cost of work in process	$469,500.00
Less: ending WIP	$25,000.00
Cost of goods manufactured	$444,500.00

Solution c:

Over applied overhead = Overhead applied - Actual overhead

= $181,500 - ($19,000 + $22,000 + $31,000 + $18,000 + $14,500 + $11,500) = $65,500

Solution d:

Ecola company
Schedule of cost of goods Sold
Particulars	Amount
Beginning finished goods inventory	$44,000.00
Add: Cost of goods manufactured	$444,500.00
Cost of goods available for sale	$488,500.00
Less: ending finished goods inventory	$35,000.00
Unadjusted cost of goods sold	$453,500.00
Less: Over-applied overhead	$65,500.00
Cost of goods sold	$388,000.00