Question

Alberts Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. The standard cost card for the company’s only product is as follows:

Inputs	Standard Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	2.0	liters	$	9.50	per liter	$	19.00
Direct labor	0.80	hours	$	20.00	per hour		16.00
Fixed manufacturing overhead	0.80	hours	$	12.00	per hour		9.60
Total standard cost per unit						$	44.60

The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $240,000 and budgeted activity of 20,000 hours.

During the year, the company applied fixed overhead to the 15,200 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $223,700. Of this total, $147,700 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $76,000 related to depreciation of manufacturing equipment.

Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.

	Cash	Raw Materials	Work in Process	Finished Goods	PP&E (net)	=	Materials Price Variance	Materials Quantity Variance	Labor Rate Variance	Labor Efficiency Variance	FOH Budget Variance	FOH Volume Variance	Retained Earnings
1/1	$1,010,000	$38,000	$0	$80,280	$530,200	=	$0	$0	$0	$0	$0	$0	$1,658,480

When applying fixed manufacturing overhead to production, the Work in Process inventory account will increase (decrease) by:

Multiple Choice

• ($147,700)

• $145,920

• ($145,920)

• $147,700

Answer 1

Answer:

Correct answer is:

$145,920

Explanation:

Given:

The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $240,000 and budgeted activity of 20,000 hours.

Standard fixed manufacturing overhead rate = 240000 / 20000 = $12

During the year, the company applied fixed overhead to the 15,200 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed.

Fixed Manufacturing overhead applied = 15200 * 0.8 * $12 = $145,920

Journal entry is:

Work in process Debit $145,920

To Fixed Manufacturing overhead Credit $145,920

As such applying fixed manufacturing overhead to production, the Work in Process inventory account will increase by $145920

Option B is correct and other options A, C and D are incorrect.