Question

A company's overhead rate is based on direct labor hours. Estimated overhead and direct labor hours are $110,000 and 125,000, respectively. During the year, actual overhead was $96,000 and actual direct labor hours were 120,000. At year end, the following balances are available before the proration of under or over applied overhead: Raw materials inventory 20,000 Work-in-process inventory 34,000 Finished goods inventory 32,000 Cost of goods sold 34,000 Calculate the balance in cost of goods sold after prorating the under or over applied overhead.

Answer 1

Calculation of the balance in cost of goods sold after prorating the overapplied overhead:

Cost of goods sold = $34,000

Overapplied overhead = (9,600)

Cost of goods sold = $24,400

Step-by-step explanation:

a) Data and calculations:

Estimated overhead = $110,000

Estimated direct labor hours = 125,000

Actual overhead = $96,000

Actual labor hours = 120,000

Overhead absorption rate = $110,000/125,000 = $0.88

Actual overhead applied = $105,600 (120,000 x $0.88)

b) Ending balances:

Raw materials inventory 20,000

Work-in-process inventory 34,000

Finished goods inventory 32,000

Cost of goods sold 34,000

c) Applied overhead $105,600

Actual overhead 96,000

Overapplied overhead 9,600