Question

QUESTION 7 25 points The following cost data relate to the manufacturing activities of Newberry Company during the just completed year: ............ $353,000 $230,000 $135,000 Actual manufacturing overhead costs incurred.. Direct materials .... Direct labor cost ............................. Inventories: Work in process, beginning ........ Work in process, ending ... $20,000 $35,000 The company uses a predetermined overhead rate to apply manufacturing overhead cost to production. The predetermined overhead rate for the year was $15 per machine-hour. A total of 23,000 machine-hours was recorded for the year. Required: a. Compute the amount of underapplied or overapplied overhead cost for the year. b. Prepare a Schedule of Cost of Goods Manufactured for the year.

Answer 1

a. Amount of under-applied of under-applied overhead cost        [Refer working note]

$8,000

under-applied

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NEWBERRY COMPANY
Schedule of Cost of Goods Manufactured
For the Current Year
Beginning work in process inventory		$20,000
Direct materials used	$230,000
Direct labor	$135,000
Manufacturing Overhead    (applied)               [Refer woking note]	$345,000
Total manufacturing costs                                [$230,000 + $135,000 + $345,000]		$710,000
Total manufacturing costs to account for          [$20,000 + $710,000]		$730,000
Less: Ending work in process inventory		$35,000
Cost of Goods Manufactured		$695,000

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Working note - Calculation of over or under applied manufacturing overhead
Actual manufacturing overhead                                                                                                            (a)	$353,000
Applied manufacturing overhead [Actual machine-hours x Overhead rate = 23,000 x $15]                (b)	$345,000
Manufacturing overhead                                                                                                                       (a - b)	$8,000
Note: Since applied manufacturing overhead ($345,000) is is less than the actual manufacturing overhead ($353,000), overhead is considered as under-applied.