Question

3. Bakerston Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year: The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,000 machine-hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the year: raw materials beginning balance $14,000 ending $22,000 WIP beginning $27,000 ending $9,000 finished goods beg $62,000 ending $77,000 • Raw materials were purchased, $315,000 (there were no Indirect Materials at this company). • The following employee costs were incurred: direct labor, $377,000; indirect labor, $96,000; and administrative salaries, $172,000. • Selling costs, $147,000. • Factory utility costs, $10,000. • Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities. • Manufacturing overhead was applied to jobs. The actual level of activity for the year was 31,816 machine-hours. (Hint: you must calculate the predetermined overhead rate per machine hours and use it to apply overhead). Required (3 Points): a. Prepare a schedule of cost of goods manufactured. b. Calculate Cost of Goods Sold (do not close the over- or under-applied Mfg. Overhead). c. Was the overhead underapplied or overapplied? By how much?

Answer 1

Predetermine overhead rate = 231000/33000 = 7 per machine hour

a. Prepare a schedule of cost of goods manufactured

Beginning work in process			27000
Beginning raw material	14000
Raw material purchase	315000
Less; Ending raw material	-22000
Direct material used		307000
Direct labour		377000
Manufacturing overhead (31816*7)		222712
Total manufacturing cost			906712
Total cost of work in process			933712
Less: Ending work in process			-9000
Cost of goods manufactured			924712

b. Calculate Cost of Goods Sold (do not close the over- or under-applied Mfg. Overhead).

Cost of goods sold = 62000+924712-77000 = 909712

c. Was the overhead underapplied or overapplied? By how much?

Overhead applied = 31816*7 = 222712

Actual overhead = 96000+10000+120000 = 226000

Under applied overhead = 3288