Question

Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.

Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow.

Direct material used	$	5,600,000
Direct labor		4,350,000
Indirect material used		64,000
Indirect labor		2,860,000
Factory depreciation		1,740,000
Factory insurance		58,000
Factory utilities		828,000
Selling and administrative expenses		2,160,000
Total	$	17,660,000

Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2143, which contained direct-material costs of $155,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold.

1. Determine the company’s predetermined overhead application rate.

2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct labor, and manufacturing overhead.

3. Compute the amount that the company would disclose as finished-goods inventory on the December 31, 20x2, balance sheet.

4. a.) Compute the amount of under- or overapplied overhead at year-end.

b.) Prepare the necessary journal entry to record its disposition.

5. Determine the company’s 20x2 cost of goods sold.

6. Would it be appropriate to include selling and administrative expenses in either manufacturing overhead or cost of goods sold? Yes or No

Answer 1

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1. predetermined overhead application rate.
Budgeted Overheads	5460000
Budgeted Labor Cost	4200000
Predetermined Overhead rate	5460000/4200000	130% of Labor Cost
2. the additions to the Work-in-Process Inventory account
Direct Material Used		5600000
Direct Labor		4350000
Manufacturing Overhead	130% of 4350000	5655000
Addition to WIP inventory		15605000
3. finished-goods inventory
Direct Material Used		155000
Direct Labor		85000
Manufacturing Overhead	130% of 85000	110500
Finished Goods inventory		350500
4a. Under/Overapplied overhead
Applied Overhead	5655000
Actual Overhead	5550000
Over applied overhead	105000
Indirect material used	64000
Indirect labor	2860000
Factory depreciation	1740000
Factory insurance	58000
Factory utilities	828000
Total	5550000
4b. Journal Entry
Manufacturing Overhead Debit	105000
to Cost of Good Sold		105000
5. Cost of Goods Sold
Beginning Inventory Cost (Given)	156800
add:Cost for the period (Part-2)	15605000
Cost of Goods Manufactured	15761800
Less: Ending Inventory Finished Goods (Part-3)	350500
Unadjusted COGS	15411300
Less: Overapplied Overhead (Part 4a)	105000
Cost of Goods Sold	15306300
6. No, Selling and administrative expenses are operating expenses, not manufacturing cost