Question

The following costs are attributed to the Quilt Company:

Purchase of raw materials (all direct)	$297,100
Direct labour cost	$141,800
Manufacturing overhead costs	$176,160
Inventories:
Beginning raw materials	$10,000
Ending raw materials	$900
Beginning work in process	$20,000
Ending work in process	$16,800
Beginning finished goods	$20,000
Ending finished goods	$5,800

Quilt Company used a 120% predetermined overhead rate based on direct labour cost.

Required:

1. Calculate the cost of goods manufactured.
2. What was the cost of goods sold before adjusting for any under or over applied overhead?
3. By how much was manufacturing overhead cost under or over applied?
4. Would the summary journal entry to close any under or over applied manufacturing overhead cost be a debit or credit to COGS?

Answer 1

1)

Computation of cost of goods manufactured:

Cost of goods manufactured
Beginning Raw material	$10000
Raw material purchase	$297100
Ending Raw material	($900)
Raw Material consumed		$306200
Direct Labor		$141800
Manufacturing Overhead		$176160
		$624160
Add: Beginning WIP		$20000
Less: Ending WIP		$16800
Cost of goods manufactured		$627360

2)

Computation of cost of goods sold:

Cost of goods sold
Cost of goods manufactured	$627360
Add: Beginning Finished goods inventory	$20000
Less: Ending Finished goods inventory	$16800
Cost of goods sold	$630560

3)

Computation of Over or Under Applied Overhead:

Absorbed Manufacturing overhead = $176160

Applied Manufacturing Overhaed = $141800 x 120% = $170160

Under Applied Overhead = $176160 - $170160 = $6000

4)

Journal Entry:

No.	Account Title & Explanation	Debit	Credit
1	Cost of goods sold	$6000
	Manufacturing Overhead		$6000
	(To Record of under applied overhead)