Question

Exercise C: Applying Overhead; Cost of Goods Sold The below cost data relate to the manufacturing activities of Brown Company during the just completed year. Manufacturing costs: Property taxes, factory $2,000 Utilities, factory $6,000 Indirect labor $12,000 Depreciation, factory $15,000 Insurance, factory $7,000 Total actual manufacturing overhead costs $42,000 Other costs incurred: Purchases of raw materials Direct labor cost $30,000 $45,000 Inventories: Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending Finished goods, beginning Finished goods, ending $10,000 $5,000 $7,000 $6,500 $15,000 $5,000 The company uses a predetermined overhead rate to apply overhead cost to production. The rate for the year was $7 per machine hour; a total of 5,000 units machine hours was recorded for the year. a. Calculate the amount of over or underapplied overhead cost for the year. b. Calculate the cost of goods sold for the year. Do not include any over or underapplied overhead in your cost of goods sold figure.

Answer 1

a) Applied overhead = 5000*7 = 35000

Actual overhead = 42000

Under applied overhead = 42000-35000 = 7000

b) Cost of goods sold

Direct material used
Beginning raw material	10000
Raw material purchase	30000
Raw material available for use	40000
Less: Ending raw material	-5000
Direct material used		35000
Direct labor		45000
Overhead		35000
Total manufacturing cost		115000
beginning WIP		7000
Total Cost of WIP		122000
Less: Ending WIP		-6500
Cost of goods manufactured		115500
Beginning finished goods		15000
Cost of goods available for sale		130500
Less: Ending finished goods		-5000
Cost of goods sold		125500