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In: Accounting

The following cost data relate to the manufacturing activities of Chang Company during the just completed...

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.

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Expert Solution

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

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