Question

ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has​ $10,000 of​ materials, $2,000 of direct labor and​ $8,000 of manufacturing overhead allocated. Job 6 was​ $30,000 of​ materials, $2,000 of direct labor and​ $10,000 of manufacturing overhead allocated. The cost of goods sold for the month was​ $40,000 and of that​ 30% was overhead. There were no finished goods in stock as the month ends. If the manufacturing overhead is underallocated by​ $10,000, which of the following choices would be the correct way to prorate​ it, assuming the proration is based on the allocated overhead in the ending balances of​ work-in-process, finished​ goods, and cost of goods​ sold? (Round any allocation percentages to one decimal​ place, X.X%.)

A.

Cost of goods sold should be increased by​ $4,000

B.

Job 5 should be allocated another​ $6,000 of cost

C.

Cost of goods sold should be reduced by​ $4,000

D.

Job 6 should be allocated another​ $6,000 of cost

Answer 1

			OH applied	% of total	Under-applied Oh	Allocation of Under-applied Oh
Work in process Job 5	8000	26.67%	10000		2667
Work in process Job 6	10000	33.33%	10000		3333
Cost of goods sold		12000	40.00%	10000		4000
Total			30000	100.00%			10000
The Above allocated amount will increase the Cost of goods sold balance by $4,000, WIP Job 5 balance by $2667 and WIP Job 6 balance by $3333.
Answer is A. Cost of goods sold should be increased by $ 4,000