Question

The Allman Brothers Company uses normal costing. The company began operations at the beginning of Year 1. During Year 1, the company produced 18,000 units and sold 15,000 units. In Year 2, the company produced 21,000 units and sold 22,000 units. The company charged overhead to production on the basis of units (like the class example). The denominator level for both Year 1 and Year 2 was 20,000 units. For both years, the budgeted variable overhead was $50,000 and the budgeted fixed overhead was $80,000. The actual overhead cost incurred in Year 2 was $60,000 for variable overhead and $82,000 for fixed overhead. For both years, the actual direct materials cost was $8 per unit and the actual direct labor cost was $10 per unit. The company carries no Work in Process inventories and uses FIFO as needed to assign costs to all inventories. Any under/overallocated overhead is closed totally to Cost of Goods Sold at the end of each year.

Assume that the Unadjusted Cost of Goods Sold using absorption costing for Year 2 was $539,000. Compute the Adjusted Cost of Goods Sold for Year 2 using absorption costing. Note that this is not a multiple choice question. When you put your answer in the box, do NOT put in a dollar sign.

Answer 1

Answer:

Adjusted Cost of goods sold = $544,500

Explanation:

Calculation of adjusted cost of goods sold

Cost of goods sold	$539,000
Add: under-applied overhead	$5,500
Adjusted cost of goods sold	$544,500

Workings:

1.) Overhead Rate = (50000 + 80000 /20000) =$6.5

Budgeted cost per unit = $8 + $10 + $6.5 (50000 + 80000 /20000)

Budgeted cost per unit = $24.5

2.) Cost of goods sold = unit sold × Budgeted cost per unit

= 22,000 × $24.5 = $539,000

3.) over/ under Applies overhead:

=Applied overhead - Actual overhead

= ($6.5 × 21,000) - (60,000+82,000)

= $136,600 - $142,000

= $5,500 under-applied

Note: Unadjusted cost of goods sold is already given in the question it is recalculated in the answer for the better understanding of the answer.