Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year:

Manufacturing overhead costs incurred:
Indirect materials	$	15,600
Indirect labor		136,000
Property taxes, factory		8,600
Utilities, factory		76,000
Depreciation, factory		250,700
Insurance, factory		10,600
Total actual manufacturing overhead costs incurred	$	497,500
Other costs incurred:
Purchases of raw materials (both direct and indirect)	$	406,000
Direct labor cost	$	66,000
Inventories:
Raw materials, beginning	$	20,600
Raw materials, ending	$	30,600
Work in process, beginning	$	40,600
Work in process, ending	$	70,600

The company uses a predetermined overhead rate of $25 per machine-hour to apply overhead cost to jobs. A total of 20,300 machine-hours were used during the year.

Required:

1. Compute the amount of underapplied or overapplied overhead cost for the year.

2. Prepare a schedule of cost of goods manufactured for the year.

Answer 1

Requirement 1:

Answer: Over applied $10,000

Calculation:

i.Overhead applied = Total machine hours x Pre-determined overhead rate per machine-hour

= 20,300 x $25

= $507,500

ii. Actual overhead = $497,500

iii. Over applied or Under applied:

Applied overhead	$507,500
(Less): Actual overhead	($497,500)
Over applied (Under applied)	$10,000

Requirement 2:

Schedule of cost fo goods manufactured
Raw materials, beginning	$20,600
Purchases of raw materials-Direct [406,000-15,600]	$390,400
Raw materials, ending	($30,600)
Direct materials used in production	$380,400
Direct labor cost	$66,000
Manufacturing overhead cost	$497,500
Total manufacturing costs	$943,900
Add: Work in process, beginning	$40,600
(Less): Work in process, ending	($70,600)
Cost of goods manufactured	$913,900