Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing overhead costs incurred: Indirect materials $ 16,600 Indirect labor 146,000 Property taxes, factory 9,600 Utilities, factory 86,000 Depreciation, factory 252,700 Insurance, factory 11,600 Total actual manufacturing overhead costs incurred $ 522,500 Other costs incurred: Purchases of raw materials (both direct and indirect) $ 416,000 Direct labor cost $ 76,000 Inventories: Raw materials, beginning $ 21,600 Raw materials, ending $ 31,600 Work in process, beginning $ 41,600 Work in process, ending $ 71,600 The company uses a predetermined overhead rate of $25 per machine-hour to apply overhead cost to jobs. A total of 21,300 machine-hours were used during the year. Required: 1. Compute the amount of underapplied or overapplied overhead cost for the year. 2. Prepare a schedule of cost of goods manufactured for the year.

Answer 1

Answers:

1.

• When overheads applied are more than the actual overheads incurred, then the difference between the two is known as overapplied overheads.
• When overheads applied are less than the actual overheads incurred, then the difference between the two is known as underapplied overheads.

Here, total actual overheads incurred are given as $522,500.

Overheads applied = predetermined overhead rate per machine hour * total machine hours used

Overheads applied = $25 * 21,300 machine hours = $532,500

Here overheads applied ( $532,500 ) are more than the actual overheads incurred ( $522,500 ) and thus we can conclude that the oveheads are overapplied

overapplied overheads = overheads applied - actual oveheads = $532,500 - $522,500 = $10,000.

2. Computation of cost of goods manufactured :

Particulars	$
Direct materials used { refer working note (1) ]	389,400
+ Direct labor cost	76,000
+ manufacturing overheads applied [ $25 * 21,300 ]	532,500
+ beginning work in process	41,600
- ending work in process	(71,600)
Cost of goods manufacutred	967,900

Working note:

(1) Calculation of direct materials used

Particulars	$
beginning raw materials	21,600
+ raw materials purchased	416,000
- ending raw materials	(31,600)
- indirect materials used	(16,600)
direct materials used	389,400