Question

1. 2. Problem Information: Morrison Company began the year with the following balances in its inventory accounts: Raw Materials $ 125.000 • Work-in-Process $ 320,000 • Finished Goods S 400.000 Morrison applies overhead to production using direct labor cost. As of the beginning of the year, Morrison estimated total manufacturing overhead for the year to be $300,000 and total direct labor cost to be $600,000 The following transactions occurred during the year: Purchased $100,000 of raw materials on account. Used 07716 raw materials in production of the materials used, 80% were classified as direct and 20% as indirect 61728 Direct Materials 15432 Indirect Materials Incurred and paid wages and salaries of $600,000. The wages were classified as: Direct labor $525,000 • Indirect labor $ 75,000 • Selling and administration $ 230,000 Incurred the following additional costs: • Miscellaneous manufacturing overhead costs (this amount does not include costs materials, indirect labor and depreciation) $ 85.000 • Selling and Administrative costs $230,000 Recorded total depreciation of $120,000, related to: Factory manufacturing equipment $75,000 Equipment used for selling and administrative purposes $45,000 3. 4 indirect 5. 6. Work in process totaling $800,000 was transferred to Finished Goods during the year. 7. During the year, finished goods costing $1,000,000 were sold for $1,500,000.

Answer 1

1. Calculation of Predetermined Overhead Rate: Predetermined Overhead Rate = Estimated Manufacturing Overhead/Allocation Base = $300,000/$600,000 = 50.00% of the Direct Labor Cost So, Predetermined Overhead Rate is 50% of Direct Labor Cost. 2. Calculation of Amount of Overhead Cost applied to Work in Process during the Year: Direct Labor Cost used in Production during the Year = $525,000.00 Predetermined Overhead Rate = 50% of Direct Labor Cost So, Overhead Cost Applied to Work in Process during the Year = $525,000 x 50% = $262,500.00

3. Calculation of Ending Balances of Raw Materials, Work In Process and Finished Goods Accounts: a. Calculation of Ending Balance of Raw Materials Account: Beginning Balance $ 125,000.00 Add: Purchases During the Year $ 100,000.00 Raw Materials Available for Use $ 225,000.00 Less: Raw Materials Used in Production $ (77,160.00) Ending Balance of Raw Materials $ 147,840.00 b. Calculation of Ending Balance of Work In Process Account: Beginning Balance $ 320,000.00 Add: Direct Materials $ 61,728.00 Add: Direct Labor $ 525,000.00 Add: Applied Overheads ($525000 x 50%) $ 262,500.00 $ 1,169,228.00 Less: Transferred to Finished Goods Inventory $ (800,000.00) Ending Balance of Work In Process Account $ 369,228.00 c. Calculation of Ending Balance of Finished Goods Account: Beginning Balance $ 400,000.00 Add: Transfer from Work In Process $ 800,000.00 Cost of Goods Available for Sale $ 1,200,000.00 Less: Cost of Goods Sold $ (1,000,000.00) Ending Balance of Finished Goods Account $ 200,000.00

4. Calculation of Amount of Over or Under Applied Overhead for the Year : Actual Overhead Cost incurred during the Year: Indirect Materials $ Indirect Labor $ Miscellaneous Overhead Costs $ Depreciation on Factory Manufacturing Equipment $ Actual Manufacturing Overhead Costs Incurred $ 15,432.00 75,000.00 85,000.00 75,000.00 250,432.00 Applied Manufacturing Overhead Cost = 50% x $525000 = $262,500.00 Here Applied Manufacturing Overhead Cost is more than Actual Manufacturing Overhead Cost. So there is Over application of Manufacturing Overhead Cost. Over-Applied Manufacturing Overhead Cost = Applied Manufacturing Overhead Cost - Actual Manufacturing Overhead Cost = $262500 - $250432 = $12,068.00 So, Over-applied Manufacturing Overhead Cost is $12068.