Question

The accounting records of Omar Company contained the following information for last year:

		Beginning	Ending
	Direct materials inventory........................	$9,000	$7,000
	Work in process inventory.......................	$17,000	$31,000
	Finished goods inventory........................	$10,000	$15,000
	Manufacturing costs incurred
	Direct materials used...............................	$72,000
	Overhead applied.....................................	$24,000
	Direct labor cost (10,000 hours)..............	$80,000
	Depreciation.............................................	$10,000
	Rent.........................................................	$12,000
	Taxes........................................................	$8,000
	Cost of goods sold...................................	$157,000*
*
	Selling and administrative costs incurred
	Advertising..............................................	$35,000
	Rent.........................................................	$20,000
	Clerical.....................................................	$25,000

3. If Omar Company applies overhead to jobs on the basis of direct labor hours and Job 3 took 120 hours, how much overhead should be applied to that job?

$528

$960

$360

$288

4. The cost of goods manufactured for the year (prior to any under/over-applied adjustments) was:

$135,000

$190,000

$162,000

$168,000

Answer 1

Solution 3:

Applied overhead cost = $24,000

Direct labor hours = 10000

Overhead absorption rate = $24,000/10000 = $2.4/hour

Required direct labor hours for job 3 = 120

Applied overhead to Job 3 = 120*2.40 = $288

Solution 4:

Let X is number of unit produced

Then no of unit sold = Opening stock + Unit produced - Finished stock

= 10000 + X - 15000 = X-5000

Cost of (X-5000) units =$157,000.......Equation 1

Unit processed = Closing WIP + Unit produced - Opening WIP = 31000 + X -17000 = X + 14000

Cost of unit processed = 72000 + 24000 + 80000 = $176,000

Cost of (X+14000) units = $176,000....Equaiton 2

On solving equation 1 & 2:

Cost of 19000 units = $19,000

per unit cost produced = $1 per unit

Therefore

Cost of (X-5000) units = 157000

(X-5000)*1 = 157000

X = 162000 units

Therefore number of unit manufactured are 162000 units and cost of goods manufactured = 162000*1 = $162,000