Question

Hershey Company uses a job order costing system and applies manufacturing overheads on the basis of direct labor cost. Total manufacturing overhead was estimated to be $142,595 for the year; direct labor was estimated to total $150,100.

	(1/1)			(12/31)
Raw Materials Inventory	$	14,200		$	9,400
Work in Process Inventory	$	20,000		$	22,700
Finished Goods Inventory	$	42,500		$	31,300

The following transactions have occurred during the year.

Raw materials purchases	$	111,000
Direct materials used	$	104,500
Direct labor	$	126,800
Indirect materials used	$	11,300
Indirect labor	$	16,300
Factory equipment depreciation	$	27,100
Factory rent	$	21,700
Factory utilities	$	9,100
Other factory costs	$	6,900

(a) Calculate the predetermined overhead rate.

(b) Calculate cost of goods manufactured.

(c) Calculate the over- or underapplied overhead. (Input the amount as positive value.)

(d) Calculate adjusted cost of goods sold.

Answer 1

a.

Estimated menufacturing overhead = $142,595

Estimated direct labor cost = $150,100

Predetermined overhead rate = Estimated menufacturing overhead/Estimated direct labor cost

= 95% of direct labor cost

b.

Overhead applied = Actual direct labor cost x Predetermined overhead rate

= 126,800 x 95%

= $120,460

Schedule of cost of goods manufactured

Raw meterial, beginning	14,200
Raw material purchases	111,000
Total raw material available	125,200
Raw metrial, ending	-9,400
Direct material used	115,800
Direct labor	126,800
Overhead applied	120,460
Total manufacturing cost	363,060
Work in process, beginning	20,000
Work in process, ending	-22,700
Cost of goods manufactured	$360,360

c.

Actual manufactruing overherad = Indirect material used + Indirect labor + Factory equipment depreciation + factory rent + Factory utilities + Other factory costs

= 11,300 + 16,300 + 27,100 + 21,700 + 9,100 + 6,900

= $92,400

Overapplied Overhead = Overhead applied - Actual manufactruing overherad

= 120,460 - 92,400

= $28,060

d.

Schedule of cost of goods sold

Finished goods, beginning	42,500
Cost of goods manufactured	360,360
Cost of goods available for sale	402,860
Finished goods, ending	-31,300
Unadjusted cost of goods sold	371,560
Overapplied overhead	-28,060
Adjusted cost of goods sold	$343,500