Question

Davis manufacturing corporation applies manufacturing overhead on the basis of 140% of direct labor cost. an analysis of the related accounts and job order cost sheet indicates that during the year total manufacturing overhead incurred was $315,000 and that at year-end work in process inventory, finished goods inventory, and cost of goods sold included $40,000, $20,000, and $140,000, respectively, of direct labor incurred during the current year.

Determine the under applied manufacturing overhead at year-end (assume it is significant)

Answer 1

To determine the under applied manufacturing overhead at year-end, calculate the applied manufacturing overhead by multiplying the direct labor cost by 140% and compare it to the actual manufacturing overhead incurred.

Step-by-step explanation:

To determine the under applied manufacturing overhead at year-end, we need to calculate the applied manufacturing overhead and compare it to the actual manufacturing overhead incurred.

Given that the manufacturing overhead is applied at a rate of 140% of direct labor cost, we can calculate the applied manufacturing overhead by multiplying the direct labor cost incurred during the current year by 140%.

In this case, the direct labor cost incurred during the current year is $40,000. So the applied manufacturing overhead would be 140% of $40,000, which is $56,000.

The actual manufacturing overhead incurred during the year is given as $315,000.

Therefore, the under applied manufacturing overhead at year-end would be the difference between the applied manufacturing overhead and the actual manufacturing overhead, which is $56,000 - $315,000 = -$259,000.

Since the under applied amount is significant, it means that the manufacturing overhead was under allocated and there is a shortage of overhead applied to the products.