Question

- fury to allocate any over- or underapplied overhead to Cost of Goods Sold. Moonrise Bakery applies factory overhead based on direct labor costs. The company incurred the follow- ing costs during 2017: direct materials costs, $650,000; direct labor costs, $3,000,000; and factory over- head costs applied, $1,800,000. 1. Determine the company's predetermined overhead rate for 2017. 2. Assuming that the company's $71,000 ending Work in Process Inventory account for 2017 had $20,000 of direct labor costs, determine the inventory's direct materials costs. 3. Assuming that the company's $490,000 ending Finished Goods Inventory account for 2017 had $250,000 of direct materials costs, determine the inventory's direct labor costs and its overhead costs.

Answer 1

1.

Predetermined overhead rate = Factory overheads/Direct labor cost

= 1,800,000/3,000,000

= $0.60 per direct labor dollar

2.

Ending work in process inventory = $71,000

Direct labor cost = $20,000

Applied overhead = Direct labor cost x Predetermined overhead rate

= 20,000 x 0.60

= $12,000

Direct material cost = Ending work in process inventory - Direct labor cost - Applied overhead

= 71,000 - 20,000 - 12,000

= $39,000

3.

Ending finished goods inventory = $490,000

Direct material cost = $250,000

Let direct labor cost in Finished goods be $K

Overhead applied = 0.6K

Direct material cost + Direct labor cost +  Applied overhead = Ending finished goods inventory

250,000 + K + 0.6K = 490,000

1.6K = 240,000

K = 150,000

Hence, direct labor cost in Finished goods = $150,000

Overhead applied = 150,000 x 0.6

= $90,000

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