Question

IYF Corporation manufactures miscellaneous parts for building construction and maintenance. IYF uses a normal job costing system. The system applies manufacturing overhead on the basis of direct labor cost. For managerial purposes, over- or underapplied overhead is written off to Cost of Goods Sold monthly. IYF hires interns to work in its Plant Accounting department and, as a part of its interview process, asks candidates to take a short quiz.

You are given the following journal entries for June. (Assume that only one entry is made each month.)

Account Titles	Debit	Credit
Work-In-Process Inventory (Direct Labor)	12,000
Wages Payable		12,000
Direct Material Inventory	13,400
Accounts Payable		13,400
Finished Goods Inventory	36,200
Work-In-Process Inventory		36,200
Cost of Goods Solda	44,200
Finished Goods Inventory		44,200

aThis entry does not include any over- or underapplied overhead. Over- or underapplied overhead is written off to Cost of Goods Sold once for the month. For June, the amount written off was 3 percent of overhead applied for June.

The Work-In-Process ending account balance on June 30 was twice the beginning balance. The Direct Material Ending Inventory balance on June 30 was $6,960 less than the beginning balance. The Finished Goods ending balance on June 30 was $3,120.

The June income statement shows Cost of Goods Sold of $44,524.

Required:

(a)	What was the Finished Goods beginning inventory on June 1?

(b)	How much manufacturing overhead was applied for June?

(c)	Overhead is applied on the basis of direct labor costs. What was the manufacturing overhead rate for June?

(d)	How much manufacturing overhead was incurred for June?

(e)	What was the Work-In-Process beginning inventory balance?

(f)	What was the Work-In-Process ending inventory balance?

Answer 1

Solution a:

Finished Goods beginning inventory on June 1 = Cost of goods sold (excluding underapplied/overapplied overhead) + Ending inventory - Cost of goods produced

= $44,200 + $3,120 - $36,200 = $11,120

Solution b:

Total cost of goods sol = $44,524

Cost of goods sold excluding underapplied overhead = $44,200

Underapplied overhead = $44,524 - $44,200 = $324

% of underapplied overhead to overhead applied = 3%

Manufacturing Overhead applied for june= 324 / 3% = $10,800

Solution c:

Direct labor cost for june = $12,000

manufacturing overhead rate for June = $10,800 / $12,000 = 90% of direct labor cost

Solution d:

Manufacturing overhead was incurred for June = Manufacturing overhead applied + Underapplied overhead

= $10,800 +$324 = $11,124

Solution e and f:

Direct material used = $13,400 + $6,960 = $20,360

Total manufacturing cost incurred in WIP = $20,360 + $12,000 + $10,800 = $43,160

Cost of goods produced = $36,200

Let beginning WIP = X

Ending WIP = 2X

X + $43,160 - 2X = $36,200

X = $6,960

Beginning WIP = $6,960

Ending wIP = $6,960 *2 = $13,920