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) on the year -end balance sheet at $156,800. There was no finished good 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 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 $5,544,000 respectively. Actual results for the year follow

Direct material used- 5,500,000

Direct labor-4,350,000

Indirect material used- 63,000

Indirect labor-2,860,000

Factory Depreciation-1,740,000

Factory Insurance-59,000

Factory Utilities-830,000

Selling and Administrative expenses-2,160,000

total 17,562,000

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

What is the company's predetermined overhead application rate.

What is the additions to the Work in Process inventory account for direct material used, direct labor, and manufacturing overhead.

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

. Compute the amount of under- or overapplied overhead at year-end. Prepare the necessary journal entry to record its disposition.

Determine the company's 20x2 cost of goods sold.

Answer 1

Solution 1:

Predetermined Overhead application rate = Estimated Overhead / Estimated direct labor cost

= $5,544,000 / $4,200,000 = 132%

Solution 2:

Addition to Work in process inventory Account
Direct Materials	$55,00,000
Direct Labor	$43,50,000
Applied Manufacturing Overhead ($4,350,000*132%)	$57,42,000
Total Additions	$1,55,92,000

Solution 3:

Finished-goods inventory on the December 31, 20x2, balance sheet = Cost of Job no. 2143

= $155000 + $85000 + ($85000*132%)

= $352,200

Solution 4:

Actual Manufacturing overhead incurred = 63,000 + 2,860,000 +1,740,000 +59,000+ 830,000 = $5,552,000

Applied Manufacturing overhead = $5,742,000 (as computed above in 2)

Over-applied overhead = $5,742,000 - $5,552,000 = $190,000

Journal entry- To dispose off over applied overhead to Cost of goods sold
Particulars	Debit	Credit
Factory Overhead Dr	$1,90,000
To Cost of Goods sold		$1,90,000

Solution 5:

Total Cost transferred to Fixed cost = Beginning work in process inventory + addition to Work in process inventory Account

= $156,800 + $15,592,000 = $15,748,800

Cost of goods sold =  Total Cost transferred to Fixed cost - Finished-goods inventory on the December 31, 20x2 - Overapplied overhead

= $15,748,800 - $352,200 - $190,000

= $15,206,600