Question

Remember that manufacturing costs are product costs and that a manufacturer will have three inventory accounts—materials, work-in-process, and finished goods. Manufacturing overhead allocated (applied) represents the amount of overhead allocated to jobs. Some companies use only a single Manufacturing Overhead account.

1. What are the three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.
2. Write the word or phrase that best completes each statement or answers the question.

In addition to the above questions, use this problem to answer the questions that follows.

Constanza Company has the following balances as of the year ended December 31, 2010

Direct Materials Inventory	$30,000	Dr.
WIP Inventory	$69,000	Dr.
Finished Goods Inventory	$99,000	Dr.
Underapplied Factory Department Overhead	$8,000	Dr.
Cost of Goods Sold	$149,000	Dr.
Additional information is as follows:
Cost of direct materials purchased during 2010	$82,000
Cost of direct materials requisitioned in 2010	$74,000
Cost of goods completed during 2010	$204,000
Factory overhead applied (120% of direct labor)	$96,000

Required for this assignment:

• Compute beginning direct materials inventory.
• Compute beginning WIP inventory.
• Compute beginning finished goods inventory.
• Compute actual factory overhead incurred.

Answer 1

Answer :

a) COMPUTATION OF BEGINNING DIRECT MATERIALS INVENTORY:

= Ending inventory of DM + DM used during the year - DM purchased during the year

=$30,000+$74,000-$82,000

=$22,000

b) COMPUTATION OF BEGINNING WIP INVENTORY

= Ending WIP inventory + Cost of goods completed during the year - (DM used + Direct labour cost + Factory overhead applied)

= $69,000 + $2,04,000 - ($74,000+$80,000+$96,000)

= $2,73,000 - $2,50,000

= $23,000

Notes:

Direct labor cost = (Factory overhead applied / 120%) = $96,000/120% = $80,000

Amma:
c) COMPUTATION OF BEGINNING FINISHED GOODS INVENTORY

= Ending Finished goods inventory + Cost of goods sold - Cost of goods completed during the year

=$99,000+$149,000-$204,000

=$44,000

d) COMPUTATION OF ACTUAL FACTORY OVERHEAD INCURRED

Actual factory overhead incurred=$96,000+$8,000

=$104,000