Question

Swift Manufacturing Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The overhead allocation rate used during the year was $100 per machine hour. At the end of the year the company had an over-allocated overhead cost totaling $500,000. Machine-hour data and the ending balances (before proration of under- or over-allocated overhead) are as follows: Actual End-of-Year Machine Hours Balance Cost of Goods Sold 80,000 $8,000,000 Finished Goods Inventory Control 15,000 1,250,000 Work in Process Inventory Control 5,000 750,000 The company prorates its under- or over-applied overhead to the Cost of Goods Sold, Finished Goods Inventory Control and Work-in-Process Control accounts on the basis of the amount of allocated overhead in each account. 1. After the proration, the end-of-year balance in the Finished Goods Inventory Control account was A) $1,325,000 B) $1,325,000 C) $840,000 D) $1,175,000 2. After the proration, the end-of-year balance in the Work in Process Inventory Control account was A) $725,000 B) $1,250,000 C) $775,000 D) $840,000

Answer 1

Pro-rata allocation of over-applied overheads:
Accounts		Machine Hours used		% as Total	Over-applied		Accounts
Dbited with Overheads		During the year		Oh allocated	Overheads		decrease by
Cost of Goods sold		80,000		80.00%	500,000		400000
Finished Goods inv.		15,000		15.00%	500,000		75000
WIP inventory		5,000		5.00%	500,000		25000
Total		100,000
				Finished	WIP
Balance in Inventories before adjustment				1,250,000	750,000
Less: Share of over applied OH				75000	25,000
Net balance after adjustment				1,175,000	725,000
Year end balance in Finished Goods:
D. $ 1175,000
Year end balance in WIP:
A. $ 725,000