Question

New Age Electronics manufactures surround sound systems and allocates overhead costs using direct-labor hours. They pay their assembly line workers $15 per hour. Unadjusted Cost of Goods Sold for the year was $598,500. Estimated accounting information for the year is as follows:

Overhead costs $140,000

Direct materials $355,000

Direct labor costs (7,000 hours @ $15/hour) $105,000

Direct labor hours 7,000

Machine hours 8,000 Actual accounting information incurred for the year was as follows:

Direct materials $350,000

Direct labor (7,100 hours @ $15/hour) $106,500

Production Manager’s Salary $ 25,000

Customer 800# order line $ 2,000

Plant rent $ 75,000

Depreciation on plant and equipment $ 50,000

Marketing expense $ 20,000

Plant utilities $ 19,000

Indirect materials $ 1,000

Delivery expenses to customers $ 5,000

Depreciation on office equipment $ 5,000

Machine hours 7,900

What actual amount of overhead costs were incurred?

Was overhead under or over allocated/applied and by how much?

$28,000 under-allocated/applied $30,000 under-allocated/applied $28,000 over-allocated/applied $30,000 over-allocated/applied

What is the adjusted Cost of Goods Sold amount?

Answer 1

1)

Actual overhead cost
Production manager salary	25000
Plant rent	75000
Depreciation on plant and equipment	50000
Plant utilities	19000
Indirect material	1000
Total actual manufacturing overhead	170000

b)

Predetermined overhead rate =Estimated overhead /estimated direct labor hours

                            = 140000/7000  

                            = $ 20 per direct labor hours

Allocated overhead =Actual direct labor hours *Predetermined overhead rate

                      = 7100 *20

                       = $ 142000

Under allocated /(over allocated) overhead =Actual overhead -Applied overhead

                                          = 170000-142000

                                         = $ 28000 under allocated .

c)

Adjusted cost of goods sold = Unadjusted Cost of Goods Sold +under allocated overhead

                                    = 598500+28000

                                    = $ 626500