Question

A review of the records of Protix, Inc., a new company, disclosed the following year-end information:

Manufacturing Overhead account: Contained debits of $906,000, which included $37,000 of sales commissions.

Work-in-Process Inventory account: Contained charges for overhead of $926,000.

Cost-of-Goods-Sold account: Contained a year-end debit balance of $3,765,000. This amount was computed prior to any year-end adjustment for under- or overapplied overhead. Pilgrim applies manufacturing overhead to production by using a predetermined rate of $25 per machine hour. Budgeted overhead for the period was anticipated to be $985,000.

Required:

1.Determine the actual manufacturing overhead for the year.

2.Determine the amount of manufacturing overhead applied to production.

3.Is overhead under- or overapplied? By how much?

4.Compute the adjusted cost-of-goods-sold figure that should be disclosed on the company's income statement.

5.How many machine hours did Protix actually work during the year?

6.Compute budgeted machine hours for the year.

Answer 1

1. Actual manufacturing overhead for the year = 906000-37000 =869000

2. Amount of manufacturing overhead applied to production = 926000

3. Manufacturing overhead is overapplied by 57000 (926000-869000)

4. the adjusted cost-of-goods-sold figure that should be disclosed on the company's income statement = cost of goods sold - manufacturing overhead overapplied

=3765000-57000 = 3708000

5. Actual hours worked = 926000/25 = 37040 hours

6. Budgeted machine hours = 985000/25 = 39400 hours