Before prorating the manufacturingoverhead costs at the end of 2008, the Cost of

Question

Before prorating the manufacturingoverhead costs at the end of 2008, the Cost of Goods Sold andFinished Goods Inventory had applied overhead costs of $57,500 and$20,000 in them, respectively. There was no Work-in-Process at thebeginning or end of 2008. During the year, manufacturing overheadcosts of $74,000 were actually incurred. The balance in the AppliedManufacturing Overhead was $77,500 at the end of 2008. If the underor overapplied overhead is prorated between Cost of Goods Sold andthe inventory accounts, how much will be allocated to the FinishedGoods Inventory? $903 $1,217 $1,283 $2,597

Explanation / Answer

Applied: $57,500 + $20,000 = $77,500 OH Application % : 57,500/77,500 = 74.19% forCOGS,  20,000/77,500 = 25.81% FGI Overapplied: $3,500 Allocation of Overapplied OH to FGI: $3,500*25.81% =$903 The amount of overapplied overhead allocated to COGS andinventory should be based on the same allocation percentage as theoriginal application. The answer is $903.

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