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		65,000
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	$	17,613,000

   

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 $154,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold.

Required:

1. Determine the company’s predetermined overhead application rate.

2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct labor, and manufacturing overhead.

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

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

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

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

	Finished-goods inventory, Jan. 1 Cost of goods available for sale Unadjusted cost of goods sold Cost of goods sold

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

Answer 1

Finlon Upholstery, Inc 1. Determine the company's predetermined overhead application rate. Manufacturing overhead 5544000 1,32 Direct material 4200000 2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct labor, and manufacturing overhead. Direct Materials 5550000 Direct Labor 4350000 (4350000 x 132%) 15642000 - Work-In-Process Inventory Manufactuing Overhead 5742000 3. Compute the amount that the company would disclose as finished-goods inventory on the December 31, 20x2, balance sheet Job #2143 Direct Materials 154000 Direct Labor 85000 Manufactuing Overhead (85000 x 132%) 351200 Finished Good Inventory 112200 X 4. Prepare the journal entry needed to record the year's completed production. Work-in-Process Inventory Beginning Balance = 15642000 156800 15798800 Finishing Food Inventory 15642000 - Work-in-Process 15642000

overapplied overhead at year-end, and prepare the necessary 5. Compute the amount of under- or journal entry to record its disposition. Indirect Material - 65000 Indirect Labor 2860000 Factory Depreciation 1740000 58000 Factory Insurance Factory Utilities - 830000 Total 5553000 5742000 Overapplied 189000 Manufacturing Overhead 189000 Cost of Goods Sold 189000 6. Determine the company's 20x2 cost of goods sold. Schedule of Gost of Goods Sold Finished good inventory, beginning 0 Add cost of goods manufactured 15798800 Cost of goods available for sale 15798800 Deduct finished good inventory, ending 351200 Cost of good sold 15447600 Add:Underapplied overhead or Deduct: Overapplied overhead 189000 Cost of good sold (adjusted) 15258600 7. Would it be appropriate to include selling and administrative expenses in either manufacturing overhead or cost of goods sold? Briefly explain. No it would not be appropriate because manufactuing overhead and cost of god sold are to be determined by direct material cost, direct labor and cost of products valuing inventory. Any outside expenses from the factory that have to do with selling costs, administrative expenses, or any other general costs are not actualy product costs and should instead be reported on the income statement.