Question

ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has $10,000 of materials, $2,000 of direct labor and $8,000 of manufacturing overhead allocated. Job 6 was $30,000 of materials, $2,000 of direct labor and $10,000 of manufacturing overhead allocated. The cost of goods sold for the month was $40,000 and of that 30% was overhead. There were no finished goods in stock as the month ends. If the manufacturing overhead is underallocated by $10,000, which of the following choices would be the correct way to prorate it, assuming the proration is based on the allocated overhead in the ending balances of work-in-process, finished goods, and cost of goods sold?

A) Job 5 would be allocated another $2,500 of cost

B) Job 6 would be allocated another $4,000 of cost

C) Cost of goods sold would be reduced by $3,300

D) Cost of goods sold would be increase by $10,000

Answer: B

Answer 1

ABC Manufacturing Inc.
Workings	Job 5	Job 6	Cost of goods sold	Total
Overhead allocated	8,000.00	10,000.00	12,000.00	30,000.00
Weight of base	26.67%	33.33%	40.00%	A
	B	See A	C=A*B
Allocation	Under applied overhead	Weight of base	Allocated cost
Job 5	10,000.00	26.67%	2,667.00
Job 6	10,000.00	33.33%	3,333.00
Cost of goods sold	10,000.00	40.00%	4,000.00
Total			10,000.00
Final Answer:
Job 5 would be allocated another $ 2,667 of cost.
Job 6 would be allocated another $ 3,333 of cost.
Cost of goods sold would be allocated another $ 4,000 of cost.