Question

Opticom, Inc. a manufacturer of fiber optic communications equipment, uses a job-order costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budgeted manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours (the company’s estimated practical capacity). Operations for the year have been completed, and all of the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from Work in Process to Finished Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and for the month of December are presented in the following table. Jobs T11-007, N11-013, and N11-015 were completed during December. All completed jobs except Job N11-013 had been turned over to customers by the close of business on December 31.

Work-in-Process				December Activity
Job No.	Balance November 30			Direct Material			Direct Labor			Machine Hours
T11-007	$	87,000		$	1,500		$	4,500		300
N11-013		55,000			4,000			12,000		1,000
N11-015		-0-			25,600			26,700		1,400
D12-002		-0-			37,900			20,000		2,500
D12-003		-0-			26,000			16,800		800
Total	$	142,000		$	95,000		$	80,000		6,000

Operating Activity	Activity through November 30			December Activity
Actual manufacturing overhead incurred:
Indirect material	$	125,000		$	9,000
Indirect labor		345,000			30,000
Utilities		245,000			22,000
Depreciation		385,000			35,000
Total overhead	$	1,100,000		$	96,000
Other data:
Raw-material purchases*	$	965,100		$	98,100
Direct-labor costs	$	845,000		$	80,000
Machine hours		72,000			6,000

Account Balances at Beginning of Year	January 1
Raw-material inventory*	$	105,200
Work-in-process inventory		60,100
Finished-goods inventory		125,000

*Raw material purchases and raw-material inventory consist of both direct and indirect materials. The balance of the Raw-Material Inventory account as of December 31 of the year just completed is $85,000. 1) How much manufacturing overhead would Opticom have applied to jobs through November 30 of the year just completed? 2) How much manufacturing overhead would have been applied to jobs during December of the year just completed? 3) Determine the amount by which manufacturing overhead is overapplied or underapplied as of December 31 of the year just completed. 4) Determine the balance in the Finished-Goods Inventory account on December 31 of the year just completed. 5) Prepare a Schedule of Cost of Goods Manufactured for Opticom, Inc. for the year just completed. (Hint: In computing the cost of direct material used, remember that Opticom includes both direct and indirect material in its Raw-Material Inventory account.)

Answer 1

1	Manufacturing overhead applied =Machine hours*Current annual rate=72000*15=$ 1080000
2	Manufacturing overhead applied =Machine hours*Current annual rate=6000*15=$ 90000
3	Total Manufacturing overhead applied=1080000+90000=1170000
	Total actual manufacturing overhead=1100000+96000=1196000
	Under-applied overhead=1196000-1170000=$26000
4	Balance in finshed goods inventory will be cost of Jobs completed but not sold
	Here,Job N11-013 completed but not sold
	Hence, Balance in finished goods inventory=Cost of Job N11-013=55000+4000+12000+(1000*15)=86000
5	Schedule of cost of goods manufactured:
	Direct materials used:
	Beginning raw materials inventory				105200
	Add: Cost of raw materials purchased
	(965100+98100)				1063200
	Total raw materials available				1168400
	Less:Ending raw materials inventory				85000
	Total raw materials used					1083400
	Direct labor		(845000+80000)			925000
	Manufacturing overhead
	Indirect materials		(125000+9000)		134000
	Indirect labor		(345000+30000)		375000
	Utilities		(245000+22000)		267000
	Depreciation		(385000+35000)		420000	1196000
	Total manufacturing cost					3204400
	Add: Beginning work-in-process inventory					60100
						3264500
	Less: Ending work in process inventory					150200
	(Note:1)
	Cost of goods manufactured					3114300