Question

Problem 3

At the end of 2019, ABC Company’s manufacturing inventory and expense accounts held the following costs.

	Work in Process Inventory	Finished Goods Inventory	Cost of Goods Sold
Direct Materials	P120,000	P190,000	P350,000
Direct Labor	P100,000	P250,000	P580,000
Factory Overhead	P60,000	P300,000	P480,000

Alonzo’s accountant applied overhead during the year using a budgeted rate of P8.40 per hour. At year end, they computed the actual rate of P10.00 per machine hour. The beginning balances of both work in process inventory and finished goods inventory were zero.

1. How much is the prorated share of Cost of Goods Sold on the allocated amount of over/under applied overhead?

2. How much is the prorated share of Work in process on the allocated amount of over/under applied overhead?

3. How much is the prorated share of Finished Goods on the allocated amount of over/under applied overhead?

Answer 1

	WORKINGS:
1]	Factory overhead applied = 60000+300000+480000 =	$       840,000
2]	Actual hours worked = 840000/8.4 =	100000
3]	Actual factory overhead = 100000*10 =	$ 1,000,000
4]	Overhead underapplied = 1000000-840000 =	$       160,000
	The above underapplied is to be prorated to WIP,
	FG and COGS in the ratio of overhead applied; that is
	in the ratio of 60000:300000:480000 or 1:5:8.
	ANSWERS:
1]	Under applied overhead prorated to COGS = 160000*8/14 =	$         91,429
2]	Under applied overhead prorated to WIP = 160000*1/14 =	$         11,429
3]	Under applied overhead prorated to FG = 160000*5/14 =	$         57,143
	Total under applied overhead prorated	$       160,000