Question

Compounding Pharmacy Equipment and Supplies Inc., makes specialized medicine dispensers for intensive care units. The company had only one job in process during July: Job HOSP52 and had no finished goods inventory on July 1. Job HOSP52 was started in June and finished during July. Data concerning that job appear below:

	Job HOSP52
Beginning balance	$9,840
Charged to the job during July:
Direct materials	$12,200
Direct labor	$ 4,300
Manufacturing overhead - actual	$ 6,550
Manufacturing overhead - applied	$ 6,120
Units completed	140 dispensers
Units in process at the end of July	0 dispensers
Units sold during July	122 dispensers

The company adjust its cost of goods sold every month for the amount of the overhead that was under-applied or over-applied.

Required:

1. Using the direct method, what is the cost of goods sold for July?

2. What is the total value of the finished goods inventory at the end of July?

3. What is the total value of the work in process inventory at the end of July?

4. Suppose that the over-or underapplied manufacturing overhead was not properly transferred to Cost of Goods Sold at the end of the period. Explain the impact that oversight would have on the company’s cost of goods sold and net income for the period.

Answer 1

	Work in progress
	Beginning	9840
	Direct material	12200
	Direct Labor	4300
	Manufacturing overhead applied	6120
	Total	32460
	Total units completed	140
	Cost per unit	231.86
1	Direct cost of goods sold
	Cost of goods sold before adjustment	28286.57	(122*231.86)
	Adjustement (Under applied overheads)	430
	Cost of goods sold	28716.57
2	Finished goods inventory	4173.428571	(18*231.86)
3	Work in progress	0