Question

Randall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below. January 1 December 31 Direct materials $ 84,000 $ 47,000 Work in process 73,000 49,000 Finished goods 122,000 107,000 Other information Direct materials purchases $ 331,000 Cost of goods available for sale 964,000 Actual factory overhead costs 267,000

The amount of underapplied or overapplied overhead is:______.

Answer 1

The cost of the manufactured goods = cost of the available goods for sale - beginning of finished goods

= 964,000 - 122,000

= $ 842,000

Total cost of manufacturing = cost of the goods manufactured + ending work in process - beginning work in process

= 842,000 + 49,000 - 73,000

= $ 818,000

The direct material used = 84,000 + 331,000 - 47,000

= $ 368,000

Now, the direct materials used + direct labor cost + factory overhead applied = the total material cost

368,000 + direct labor cost + 125% of direct labor = 818,000

225% of the direct labor cost = 818,000 - 368,000

= $ 450,000

Direct labor =
`$(450,000)/(225)$`% = $ 200,000

Therefore the factory overhead applied = 200,000 x 125%

=
`$\$ 250,000$`

The underapplied overhead =
`$\text{actual overhead} - \text{applied overhead}$`

=
`$\$ \ 260,000 - \$ \ 250,000$`

= $ 10,000