Question

Question 1                                                                                                           (Total: 36 marks)

The following costs are attributed to the Gandalf and Company:

Purchase of raw materials (all direct)	$291,100
Direct labour cost	141,800
Manufacturing overhead costs	198,100
Change in inventories:
Decrease in raw materials	$9,100
Decrease in work in process	4,100
Decrease in finished goods	13,200

Gandalf and Company used a 120% predetermined overhead rate based on direct labour cost.

Required:

1. Calculate the cost of goods manufactured.

1. What was the cost of goods sold before adjusting for any under or over applied overhead?
2. By how much was manufacturing overhead cost under or over applied?
3. Prepare a summary journal entry to close any under or over applied manufacturing overhead cost to cost of goods sold. Is such an entry appropriate in this situation? Why or why not?

Answer 1

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Answer is highlighted in yellow: Solution: Decrease in work in process Direct material used (291100+9100) Direct Labor Manufacturing overhead applied Cost of goods manufactured Add: Decrease in finished goods cost of goods sold before adjustment (141800*120%) 4100 300200 141800 170160 616260 13200 629460 b) Actual overhead Less: Applied overhead Underapplied 198100 170160 27940 c) Credit Debit $ 27,940 Account title and explaination Cost of goods sold Manufacturing overhead (To close the underapplied overhead to COGS) $ 27,940 Yes Because, $27,940 amount is immaterial for such a big cost of goods sold of 629460.