Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year:

Manufacturing overhead costs incurred:
Indirect materials $15,000
Indirect labor 130,000
Property taxes, factory 8,000
Utilities, factory 70,000
Depreciation, factory 240,000
Insurance, factory 10,000
Total actual manufacturing overhead
costs incurred $473,000
Other costs incurred:
Purchases of raw materials(both
direct and indirect) $400,0000
Direct labor cost $60,0000
Inventories:
Raw materials, beginning. $20,0000
Raw materials, ending $30,0000
Work in process, beginning $40,0000
Work in process, ending $70,0000

The company uses a predetermined overhead rate to apply manufacturing overhead cost to production. The total estimated manufacturing overhead for the period is $376,000. The total estimated machine hours are 23,500. A total of 23,000 actual machine-hours was recorded for the year.

Required:
1. Compute the amount of underapplied or overapplied overhead cost for the year.
2. Prepare a schedule of cost of goods manufactured for the year.

Answer 1

1. The overhead is under applied - $ 105,000

2. Schedule of cost of goods manufactured

Raw materials consumed $ 390,000

Direct Labor $ 60,000

Applied manufacturing overhead $ 368,000

Total manufacturing input $ 818,000

Add: Opening work in process $ 40,000

Less: Closing work in process $ ( 70,000)

Cost of goods manufactured $ 788,000

Step-by-step explanation:

Calculation of predetermined overhead

Estimated manufacturing overhead $ 376,000

Estimated machine hours 23,500

Predetermined overhead rate $ 16 per machine hour

Calculation of over - under application of overhead

Actual machine hours 23,000

Predetermined overhead rate $ 16 per machine hour

Total Overhead applied 23,000 * $ 16 = $ 368,000

Actual overhead $ 473,000

Underapplication of overhead $ 105,000

Calculation of materials consumed

Raw materials beginning $ 20,000

Purchases $ 400,000

Less: Raw materials ending $ ( 30,000)

Raw materials consumed $ 390,000

Direct Labor $ 60,000

Applied manufacturing overhead $ 368,000

Total manufacturing input $ 818,000

Add: Opening work in process $ 40,000

Less: Closing work in process $ ( 70,000)

Cost of goods manufactured $ 788,000

Answer 2

Amount of underapplied or overapplied overhead cost for the year

$97000 - Underapplied

Schedule of cost of goods manufactured for the year

Direct Material 3885000

Direct Labor 60000

Overheads 376000

Total Manufacturing Costs 4321000

Add Opening Inventory WIP 400000

Less Closing Inventory WIP (700000)

Cost of Goods Manufactured 4021000

Step-by-step explanation:

Amount of underapplied or overapplied overhead cost for the year

Underapplied or Overapplied overhead cost =Actual Overhead - Applied Overhead

$473000-$376000= $ 97000

Schedule of cost of goods manufactured for the year

Direct Materials Calculation

Opening 200000

Add Purchases 4000000

Available 4200000

Less Closing Material 300000

Materials Consumed 3900000

Less Indirect Materials 15000

Direct Materials Consumed 3885000