Question

Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.

Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,544,000, respectively. Actual results for the year follow.

Direct material used	$	5,550,000
Direct labor		4,350,000
Indirect material used		63,000
Indirect labor		2,860,000
Factory depreciation		1,740,000
Factory insurance		58,000
Factory utilities		830,000
Selling and administrative expenses		2,160,000
Total	$	17,611,000

   

Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2143, which contained direct-material costs of $155,000 and direct-labor charges of $85,000. The company charges any under- or over applied overhead to Cost of Goods Sold.

1. Compute the amount that the company would disclose as finished-goods inventory on the December 31, 20x2, balance sheet.

2. Prepare the journal entry needed to record the year’s completed production.

3. Compute the amount of under- or overapplied overhead at year-end.

4. Prepare the necessary journal entry to record its disposition

5. Determine the company’s 20x2 cost of goods sold.

6. Would it be appropriate to include selling and administrative expenses in either manufacturing overhead or cost of goods sold?

Answer 1

SOLUTION 1:$35,2200 (see step 3)

SOLUTION 2;

FINISHING GOOD INVENTORY A/C Dr. $15,64,2000

to WIP   $15,64,2000

SOLUTION 3 :OVERAPPLIED =$191,000 (see step 5)

SOLUTION 4:

MANUFACTURING OH A/C DR. $191,000

TO COST OF GOODS SOLD   $191,000

SOLUTION 5:$15,25,5600 ( see step 6)

SOLUTION6 : NO,IT would not be appropriate because manufacturing overhead and cost of good sold are to be determined by direct material cost, direct labour and cost of products valuing inventory. any outside expenses from the factory that have to do with selling cost , administartion expenses or any other general costs are not actualy product cost and should instead be reported on the income statement.

EXPLANATION:

STEP 1 CALCULATION OF COMPANY PREDETERMINED OH APPLICATION RATE :

=MGF OH /DIRECT LABOUR

= $5,544,000 /4,200,000

=1.32

STEP 2 : CALUCALTION OF THE ADDITIONS TO THE WIP INVENTORY ACCOUNT FOR DIRECT MATERIAL USED , DIRECT LABOUR AND MGF OH

DIRECT MATERIAL = $5,550,000

DIRECT LABOUR = $4,350,000

MGF OH (4,350,000 X 132%) = $574,2000

WIP INVENTORY = $15,64,2000

STEP 3:

DIRECT MATERIAL = $155,000

DIRECT LABOUR = $85,000

MANUFACTURING OH($85,000 X132%) =$11,2200

FINSIDED GOOD INVENTORY = $35,2200

STEP 4:COGS MANUFACTURED

=WIP INVENTORY + BEG. BALANCE

$15,64,2000 +$156,800

= $15,79,8800

STEP 5 :UNDERAPPLIED/ OVER APPLIED OH

Indirect material used	63,000
Indirect labor	2,860,000
Factory depreciation	1,740,000
Factory insurance	58,000
Factory utilities	830,000
TOTAL	555,1000
MGF OH(	$574,2000
OVERAPPLIED	$191,000

STEP 6 : CALCULATION OF COGS

FINSIHED GOODS AT BEG.	0
ADD : COGS MANUFACTURED	$15,79,8800
COGS AVAILABLE FOR SALE	$15,79,8800
LESS : FINSIHED GOODS AT END	($35,2200)
COGS	$15,44,6600
LESS: OVERAPPLIED OH	($191,000)
COGS (ADJUSTED)	$15,25,5600

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