Question

2. MD Manufacturing has the following beginning and ending account balances Beginning Balance Ending. Balanse Raw Materials $26.000 $33,000 Work-in-Process 564,000 $71.000 Finished Goods Inventory $48.000 $45.000 MD uses normal costing, MD allocates overhead based on machine hours. At the beginning of the year, MD estimated overhead for the year to be $200,000 and machine hours to be 2,500 hours. Actual machine hours during the year was 2.700 and actual overhead incurred was $230,000. Purchases of raw materials for the year were $250.000 and actual direct labor hours were 4.200 hours. Direct labor costs $40 per hour. A. What is the Cost of Goods Manufactured and Cost of Goods Sold (prior to any over- or under- allocated overhead adjustment? B. By how much was the manufacturing overhead over-or under allocated (over-or under applied)? Please also state whether it is over or under allocated.

Answer 1

Actual direct labor hours = 4,200

Direct labor cost = $40 per hour

total direct labor cost = Actual direct labor hours x Direct labor cost

= 4,200 x 40

- $168,000

Estimated overheads = $200,000

Estimated machine hours = 2,500

Predetermined overhead rate = Estimated overheads/Estimated machine hours

= 200,000/2,500

= $80 per machine hour

Applied overhead = Actual machine hours x Predetermined overhead rate

= 2,700 x 80

= $216,000

Actual overheads = $230,000

Applied overheads = $216,000

Under applied overheads = Actual overheads- Applied overheads

= 230,000-216,000

= $14,000

A.

Schedule of Cost of Goods Manufactured
Raw materials beginning	26,000
Raw materials purchase	25,000
Total raw materials available	51,000
Raw materials ending	-33,000
Direct materials used	$18,000
Direct labor	168,000
Manufacturing overhead applied	216,000
Total Manufacturing cost	$402,000
Work in process inventory beginning	64,000
Work in process inventory ending	-71,000
Cost of goods manufactured	$395,000

B.

Schedule of Cost of Goods Sold
Finished goods inventory, beginning	48,000
Cost of goods manufactured	395,000
Cost of goods available for sale	$443,000
Finished goods inventory ending	-45,000
Cost of goods sold	$398,000

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