Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing overhead costs incurred: Indirect materials $ 16,000 Indirect labor 140,000 Property taxes, factory 9,000 Utilities, factory 80,000 Depreciation, factory 251,500 Insurance, factory 11,000 Total actual manufacturing overhead costs incurred $ 507,500 Other costs incurred: Purchases of raw materials (both direct and indirect) $ 410,000 Direct labor cost $ 70,000 Inventories: Raw materials, beginning $ 21,000 Raw materials, ending $ 31,000 Work in process, beginning $ 41,000 Work in process, ending $ 71,000 The company uses a predetermined overhead rate of $25 per machine-hour to apply overhead cost to jobs. A total of 20,700 machine-hours were used during 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

To compute the amount of underapplied or overapplied overhead costs, we subtract the applied manufacturing overhead costs from the actual manufacturing overhead costs. In this case, the company overapplied overhead cost. To prepare a schedule of cost of goods manufactured, we calculate the total manufacturing cost by summing the direct materials used, direct labor cost, and applied manufacturing overhead costs.

Step-by-step explanation:

To compute the amount of underapplied or overapplied overhead cost for the year, we need to compare the actual manufacturing overhead costs incurred with the applied manufacturing overhead costs. The applied manufacturing overhead costs can be calculated by multiplying the predetermined overhead rate of $25 per machine-hour by the number of machine-hours used, which is 20,700 in this case. Thus, the applied manufacturing overhead costs are $25 x 20,700 = $517,500.

To compute the amount of underapplied or overapplied overhead cost, we subtract the applied manufacturing overhead costs from the actual manufacturing overhead costs incurred: $507,500 - $517,500 = -$10,000. Since the result is negative, it indicates that the company has overapplied overhead cost for the year.

To prepare a schedule of cost of goods manufactured for the year, we need to calculate the total manufacturing cost. The total manufacturing cost is the sum of the direct materials used, the direct labor cost, and the applied manufacturing overhead costs.

Direct materials used can be calculated by subtracting the beginning raw materials inventory from the ending raw materials inventory and adding the purchases of raw materials: $31,000 - $21,000 + $410,000 = $420,000.

The direct labor cost is given as $70,000.

The applied manufacturing overhead costs were calculated earlier as $517,500.

Thus, the total manufacturing cost is $420,000 + $70,000 + $517,500 = $1,007,500.

The schedule of cost of goods manufactured would include the following:

• Direct materials used: $420,000
• Direct labor cost: $70,000
• Applied manufacturing overhead costs: $517,500
• Total manufacturing cost: $1,007,500
• Add: Beginning work in process inventory: $41,000
• Subtract: Ending work in process inventory: $71,000
• Cost of goods manufactured: $977,500

Answer 2

Answer and Explanation:

The computation of given question is shown below:-

The difference between the actual accumulated manufacturing overhead and the applied overhead measured on the basis of actual activity carried out at standard cost is the overhead expense under or over applied.

When applied overheads, the overheads are considered underapplied less than the actual overhead.

When overheads are applied, the overheads are considered overapplied higher than the real overhead.

So, we need to compute the applied overhead to find out the under or over applied overhead.

Applied Manufacturing Overhead = Total Machine Hours actually recorded × Predetermined Overhead Rate

= 20,700 MHs × $25

= $517,500

As we can see that the applied overheads are greater than the actual incurred overhead, so, Overheads are overapplied.

Over-Applied Overhead Cost = Applied Overhead – Actual Overhead

= 517,500 – 507,500

= $10,000

2. The preparation of schedule of cost of goods manufactured for the year is shown below:-

Chang Company

Schedule of Cost of Goods Manufactured

Direct materials:

Raw material, beginning $21,000

Raw material, purchases

(excluding indirect material

($410,000 - $16,000) $394,000

Raw materials available

for use $415,000

Less: Raw materials, ending ($31,000)

Raw materials use

in production $799,000

Add: Direct labor cost $70,000

Add: Applied Manufacturing

Overhead

(20,700 MHs × $25) $517,500

Total manufacturing costs $1,386,500

Add: Work in process,

beginning $41,000

Less: Work in process, ending ($71,000)

Cost of goods manufactured $1,356,500