Question

Exercise 3-7 Applying Overhead; Cost of Goods Manufactured (LO3-3, LO3-4] The following cost data relate to the manufacturing activities of Chang Company during the just completed year: points eBook $ 16,200 142,000 9,200 82,000 169,900 11,200 $ 430,500 Hint Print Manufacturing overhead costs incurred: Indirect materials Indirect labor Property taxes, factory Utilities, factory Depreciation, factory Insurance, factory Total actual manufacturing overhead costs incurred Other costs incurred: Purchases of raw materials (both direct and indirect) Direct labor cost Inventories: Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending References $ 412,000 $ 72,000 $ 21,200 $ 31,200 $ 41,200 $ 71,200 The company uses a predetermined overhead rate of $21 per machine-hour to apply overhead cost to jobs. A total of 20,900 machine-hours were used during the year. Required: 1. Compute the amount of underapplied or overapplied overhead cost for the year. 2. Prepare a schedule of cost of goods manufactured for the year.

Answer 1

1. Overapplied Overhead cost    [Refer working note]

$8,400

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2
Chang Company
Schedule of Cost of Goods Manufactured
Direct Materials:
Raw materials inventory, beginning	$21,200
Add: Purchases of raw materials	$412,000
Total raw materials available	$433,200
Less: Raw materials inventory, ending	$31,200
Raw Materials used in production	$402,000
Less: Indirect materials	$16,200	$385,800
Direct labor		$72,000
Manufacturing overhead cost applied to work in process          [Refer working note]		$438,900
Total manufacturing costs        [$385,800 + $72,000 + $438,900]		$896,700
Add: Work in Process inventory, beginning		$41,200
		$937,900
Less: Work in process inventory, ending		$71,200
Cost of Goods Manufactured		$866,700

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Working note - Computation of Under-applied or Over-applied overhead
Predetermined Overhead rate                                             (a)	$21
Number of machine hours                                                    (b)	20,900
Manufacturing overhead cost applied to work in process   (c = a x b)	$438,900
Actual manufacturing overhead cost incurred                     (d)	$430,500
Since the amount of manufacturing overhead applied ($438,900) is more than the manufacturing overhead cost incurred ($430,500), overhead is considered to be over-applied.
Over-applied overhead cost                                         [c - d]	$8,400