Question

Required information [The following information applies to the questions displayed below.) Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in- process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date. Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company's practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow. Direct material used Direct labor Indirect material used Indirect labor Factory depreciation Factory insurance Factory utilities Selling and administrative expenses Total $ 5,550,000 4,350,000 63,000 2,860,000 1,740,000 58,000 828,000 2,160,000 $17,609,000 Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2143, which contained direct-material costs of $154,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold. Required: 1. Determine the company's predetermined overhead application rate. Predetermined overhead rate %

Answer 1

1)
Predetermined Overhead Application Rate (POR) =	Budgeted Manufacturing Overhead / Budgeted Direct Labor Cost
Predetermined Overhead Application Rate (POR) =	$5,460,000 / $4,200,000	130%	of Direct Labor Cost
	of Direct Labor Cost
2)
Direct Material Used =	$5,550,000
Direct Labor =	$4,350,000
Direct Material Used =	$5,600,000
Direct Labor =	$4,350,000
Manufacturing Overhead = $4,350,000 x 130%	$5,655,000
Additions to the work-in-process inventory =	$15,605,000
3)
Job # 2143
Direct Material Used =	$             154,000.00
Direct Labor =	$               85,000.00
Manufacturing Overhead = $4,350,000 x 130%	$             110,500.00
Finished Goods Inventory	$             349,500.00
4)
Account Titles	Debit	Credit
Finished Goods Inventory ($15,605,000 + 156,800)	$15,761,800
Work-in-Process		$15,761,800
5) a)
Actual Overhead = Indirect Material Used + Indirect Labor + Factory Depreciation + Factory Insurance + Factory Utilities
Actual Overhead = $63,000 + $2,860,000 + $1,740,000 +$8,000 + $828,000	$5,549,000.00
Applied Overhead = Direct Labor Cost * POR	$          5,655,000.00
Over - Applied Overhead =	$             106,000.00
b)
Account Titles	Debit	Credit
Manufacturing Overhead	$             106,000.00
Cost of good sold		$ 106,000.00
6)
Finished-goods inventory, Jan. 1	0
Add: Cost of goods manufactured	$15,761,800
Cost of goods available for sale	$        15,761,800.00
Less: Finished-goods inventory	$             349,500.00
Unadjusted cost of goods sold	$        15,412,300.00
Less: Overapplied overhead	$             106,000.00
Cost of goods sold	$        15,306,300.00