Question

Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below.

		January 1		December 31
	Direct materials	$	77,000	$	40,000
	Work in process		66,000		42,000
	Finished goods		115,000		100,000
	Other information
	Direct materials purchases			$	324,000
	Cost of goods available for sale				950,000
	Actual factory overhead costs				260,000

The amount of underapplied or overapplied overhead is:

Answer 1

cost of goods available for sale is the sum of begnning finished goods and cost of goods manufactured.

( cost of goods available for sale=begnning finished goods+cost of goods manufactured.)

so, 950000=115000+cost of goods manufacured. ( cost of goods available for sale and finished good are given in question)

so, cost of goods manufactured=950000-115000=835000.

we know the equation to calculate cost of goods manufactured .

that is , cost of goods manufactured=total manufacturing cost+beginning work in process-ending work in process

from this equation we can find total manufacturing cost.

so total manufacturing cost=cost of goods manufactured + ending work in process-beginning work in process.

total manufacturing cost =835000+42000-66000 (ending and beginning work in process is given ith question.)

=811000

we know the total manufacturing cost=direct material used+direct labor used+manufacturing over head applied.

direct material used=beginning direct material+direct material purchase-ending direct material

direct material used=77000+324000-40000=361000.(all figures given in question)

let assume direct labor is 'x'.

so direct labor applied =125%*x=(125/100)*x=1.25x.

we already know that total manufacturing cost =811000.

substitute these figures in equation to calculate total manufacturing cost.

total manufacturing cost=direct material used+direct labor used+manufacturing over head applied.

811000=361000+x+1.25x

solve this equation to find 'x'.

811000=361000+2.25x

so 2.25x=811000-361000=450000

so x=450000/2.25=200000

we know that overhead applied=1.25x(125% of direct labor(x))

so overhead applied=1.25*200000=250000.

under or over applied=actual overhead incurred-overhead applied during the period.

=260000-250000=10000.

so under applied=10000.

note:in this question factory overhead applied is less than actual factory overhead incurred so it is under applied.