Question

5. Plastic Products Company manufactures pipes and applies manufacturing costs to production at a predetermined overhead rate of $12 per direct labor-hour. The following data are obtained from the accounting records for June: Direct materials Direct labor (16,000 hours @ $11/hour) Indirect labor Plant facility rent Depreciation on plant machinery and equipment Sales commissions Administrative expenses Sales revenue Cost of goods sold (before adjustment for over/under applied overhead) $350,000 176,000 20,000 100,000 40,000 50,000 60,000 1,200,000 360,000 Required: a. What actual amount of manufacturing overhead costs was incurred during June? b. What amount of manufacturing overhead was applied to all jobs during June? For June, was manufacturing overhead underapplied or overapplied and by how much? d. Suppose the company adjusts its over- and under-applied overhead through its cost of goods sold directly, what was the company's gross profit? c.

Answer 1

a. Actual amount of manufacturing overhead costs incurred during June : $ 160,000

Indirect labor	$ 20,000
Plant facility rent	100,000
Depreciation on plant machinery and equipment	40,000
Actual manufacturing overhead incurred in June	$ 160,000

b. Manufacturing overhead applied to jobs during June = 16,000 direct labor hours x $ 12 = $ 192,000

c. For june, manufacturing overhead was overapplied by $ 32,000

d. Adjusted cost of goods sold = $ 360,000 - $ 32,000 = $ 328,000

Gross profit = Sales - Adjusted Cost of Goods Sold = $ 1,200,000 - $ 328,000 = $ 872,000