Asked by Radhika Kalra on Jun 10, 2024
Verified
The Tse Manufacturing Corporation uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company's Finished Goods inventory account was debited for $125,000 and credited for $110,000. The ending balance in the Finished Goods inventory account was $28,000. At the end of the year, manufacturing overhead was overapplied by $4,500.If the estimated manufacturing overhead for the year was $24,000, and the applied overhead was $26,500, the actual manufacturing overhead cost for the year was:
A) $19,500
B) $22,000
C) $28,500
D) $31,000
Manufacturing Overhead
All indirect costs related to manufacturing, such as utilities, maintenance, and depreciation of equipment, not directly tied to the production of goods.
Job-Order Costing
A method of costing that collects costs for each individual job or batch of goods produced, as opposed to process costing.
Overapplied Overhead
A situation where the allocated manufacturing overhead costs are higher than the actual overhead expenses incurred.
- Understand the procedure for reconciling differences in underapplied or overapplied manufacturing overhead to the Cost of Goods Sold (COGS) or relevant accounts when necessary.
- Calculate and analyze the effect of applied manufacturing overhead on the total manufacturing costs and the final product cost.
Verified Answer
Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory
Using the information given in the question, we can calculate the Cost of Goods Sold:
Cost of Goods Sold = $110,000 + Cost of Goods Manufactured - $28,000
$Cost of Goods Sold = $82,000 + Cost of Goods Manufactured
We know that the overhead applied during the year was $26,500, and that the estimated overhead for the year was $24,000. This means that the overhead was overapplied by $2,500 (applied overhead - estimated overhead = overapplied overhead). Therefore, we need to subtract this amount from the total manufacturing cost to find the actual overhead cost:
Actual Manufacturing Overhead = Applied Overhead - Overapplied Overhead
Actual Manufacturing Overhead = $26,500 - $2,500
Actual Manufacturing Overhead = $24,000
Using this information, we can calculate the Cost of Goods Manufactured:
Cost of Goods Manufactured = Direct Materials Used + Direct Labor + Manufacturing Overhead Applied
Cost of Goods Manufactured = $75,000 + $42,000 + $26,500
Cost of Goods Manufactured = $143,500
Now we can substitute the Cost of Goods Manufactured into the Cost of Goods Sold equation to find the answer:
Cost of Goods Sold = $82,000 + $143,500 - $28,000
Cost of Goods Sold = $197,500
Therefore, the actual manufacturing overhead cost for the year was:
Actual Manufacturing Overhead = $24,000.
Learning Objectives
- Understand the procedure for reconciling differences in underapplied or overapplied manufacturing overhead to the Cost of Goods Sold (COGS) or relevant accounts when necessary.
- Calculate and analyze the effect of applied manufacturing overhead on the total manufacturing costs and the final product cost.
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