Question

LilPete makes and sells plans. The manufacturing process has two stages: Fabricating and Packaging. The plans are fabricated in one building and then transferred to the Packaging shed to be finished. When the packaging is completed, the plans are transferred to the finished plan showroom. Manufacturing Overhead is applied to the Fabricating area based on DL Hours incurred in the Fabricating area. • Expected Fabricating DL Hours for January 2020 - 600 DL Hours • Expected Fabricating Overhead - $24,000 Manufacturing Overhead is applied to the Packaging area based on DL Hours incurred in the Packaging area. • Expected Packaging DL Hours for January 2020 – 250 DL Hours • Expected Packaging Overhead - $5,100 Beginning and ending inventory balances for January: 1/1/20 1/31/20 Materials Inventory $6,000 4,000 Fabricating WIP $3,000 4,000 Packaging WIP $4,000 3,000 Finished Plans Inventory $4,000 3,000 During January of 2020: LilPete purchased $30,000 of Materials Incurred $11,550 of Direct Labor (525 DL Hours @ $22 per DL Hour) in the Fabricating area Incurred $5,130 of Direct Labor (190 DL Hours @ $27 per DL Hour) in the Packaging area Incurred Manufacturing Overhead in the Fabricating area totaling $20,000 Incurred Manufacturing Overhead in the Packaging area totaling $5,600 Required: What is Cost of Goods Manufactured for January 2020? • What is Cost of Goods Sold for January 2020 before closing any over/under applied overhead to COGS? • What is COGS if any over/under applied overhead is closed to COGS? • What is LilPete's January gross profit if they sold the finished plans for $150,000?

If you could post the work done with the answers, that would be very much appreciated. Thank you!

Answer 1

Cost of goods manufactured:
					$	$
Materials inventory 01/01/20					6000
Add: Materials purchased					30000
					36000
Less: materials inventory 1/31/20					4000
Materials used						32000
Direct labor:
Fabricating					11550
Packaging					5130	16680
Manufacturing overhead applied:				(Note:1)
Fabricating					21000
Packaging					3876	24876
Total manufacturing cost incurred						73556
Add: WIP 01/01/20
Fabricating					3000
Packaging					4000	7000
Total manufacturing cost to account for						80556
Less: WIP 01/31/20
Fabricating					4000
Packaging					3000	7000
Cost of goods manufactured						73556
Note:1
Fabricating:
Predetermined overhead rate=Expected fabricating overhead/Expected fabricating DL hours=24000/600=$ 40 per hour
Manufacturing overhead applied=Predetermined overhead rate*Actual fabricating DL hours=40*525=$ 21000
Packaging:
Predetermined overhead rate=Expected packaging overhead/Expected packaging DL hours=5100/250=$ 20.40 per hour
Manufacturing overhead applied=Predetermined overhead rate*Actual fabricating DL hours=20.40*190=$ 3876
Cost of goods sold:
					$
Cost of goods manufactured					73556
Add:Finished plans inventory on 01/01/20					4000
					77556
Less:Finished plans inventory on 01/31/20					3000
Cost of goods sold					74556
Over/under applied overhead:
Fabricating:
Manufacturing overhead applied=$ 21000
Manufacturing overhead incurred=$ 20000
Applied OH > Actual OH.
Hence,OH is said to be over-applied
Over-applied overhead=21000-20000=$ 1000
Cost of goods sold will be reduced by $ 1000
Packaging:
Manufacturing overhead applied=$ 3876
Manufacturing overhead incurred=$ 5600
Applied OH < Actual OH.
Hence,OH is said to be under-applied
Under-applied overhead=5600-3876=$ 1724
Cost of goods sold will be increased by $ 1724
Adjusted COGS=74556-1000+1724=$ 75280
Gross profit=Sales revenue-Cost of goods sold=150000-75280=$ 74720