Question

Drew Corp. Designs and manufactures mascot uniforms for high school, college, and professional sports teams. Since each team's uniform is unique in color and design, Drew uses a job order costing system. On January 1, the T-accounts for some of Drew's primary balance sheet accounts were as follows:

Raw materials inventory- 59400

Finished Goods Inventory-34600

Accounts receivable-47300

Work in process Inventory-25500

Cash-38200

accounts payable- credit 41900

During the year, the following events occurred:

1. Drew purchased raw materials costing 114000 on account.

2. Drew used 149300 of raw materials in production. Of these, 80% were classified as direct materials and 20% as indirect materials. (Drew maintains a single Raw Materials Inventory Account.)

3. Drew used 31200 hours of direct labor. The company's average direct labor rate was 11 per hour (credit Wages Payable).

4. The company's indirect labor cost was 168000 (credit Wages Payable).

5. Other manufacturing overhead costs the company incurred on account totaled 98400

6. Drew applied 316800 in manufacturing overhead

7. the company completed production of goods costing 795400

8. the company's cost of goods sold balance was 801300, before adjusting for over- or underapplied overhead.

9. Sales revenue was 1050000 (all sales were made on account).

10. Drew collected 803200

11. The company paid accounts payable of 201300

12. At year-end, all wages earned during the year had been paid.

A.) Calculate under- or overapplied overhead for the year.

B.)Assuming that Unresolved closes under- or overapplied overhead to Cost of Goods Sold, calculate the cost of goods sold for the year.

C.)Assuming that Unresolved prorates under- or overapplied overhead to the appropriate accounts, calculate the adjusted Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold balances for the year

Answer 1

A)	Actual manufacturing overhead:
					$
	Indirect materials		(149300*20%)		29860
	Indirect labor cost				168000
	Other manufacturing overhead costs				98400
	Total				296260
	Manufacturing overhead applied=$ 316800
	Manufacturing overhead applied > Actual manufacturing overhead
	Hence,Manufacturing overhead is over-applied
	Over-applied overehad=316800-296260=$ 20540
B)	Over-applied overehead reduces the cost of goods sold by $ 20540.
	Cost of goods sold=801300-20540=$ 780760
C)	Over-applied overhead is prorated to the work in Process Inventory,finished Goods Inventory, and cost of Goods Sold based on the ending balance (unadjusted) of the appropriate accounts
	Ending balances (unadjusted):
		Work in process inventory
					$
	Beginning balance				25500
	Add:
	Direct materials cost		(149300*80%)		119440
	Direct labor cost		(31200*11)		343200
	Manufacturing overhead applied				316800
					804940
	Less:Cost of completed production				795400
	Ending balance				9540
		Finished goods inventory
					$
	Beginning balance				34600
	Add:Cost of completed production				795400
					830000
	Less:Cost of goods sold				801300
	Ending balance				28700
	Cost of goods sold=$ 801300
	Allocation of over-applied overhead of $ 20540:
				Ending balance	% of allocation	Over-applied overhead	Allocated over-applied overhead
				a	a	b	a*b
	Work in process inventory			9540	1.14%	20540	233
	Finished goods inventory			28700	3.42%	20540	702
	Cost of goods sold			801300	95.45%	20540	19605
				839540			20540
	Allocation of over-applied overhead will reduce Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold balances.
	Adjusted balances:
	Work in process inventory=9540-233=$ 9307
	Finished goods inventory=28700-702=$ 27998
	Cost of goods sold=801300-19605=$ 781695