The following cost data relate to the manufacturing activities of Chang Company

Question

The following cost data relate to the manufacturing activities of Chang Company during the just completed year:
Actual 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 charged to jobs:
Direct materials . $375,000
Direct labor cost $60,000

Inventories:
Work in process, beginning .40,000
Work in process, ending .70,000

The company uses a predetermined overhead rate to apply overhead cost to production. The rate for the year was $25 per machine-hour. A total of 19,400 machine-hours was recorded for the year.

1. Compute the amount of underapplied or overapplied overhead cost for the year.

2. Determine the cost of goods manufactured for the year using the indirect method.

Explanation / Answer

Applied over head would be 19,400 *$25= $485,000. Since incurred was $473,000 there would be $12,000 overapplied. Beginning WIP 40,000 Add: Direct Materials 375,000 Direct Labor 60,000 Applied Overhead 485,000 Less: Ending WIP (70,000) Total COGS $890,000

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