In the past year, Oak Crafters Cabinets had total revenue of $2,538,000, cost of

Question

In the past year, Oak Crafters Cabinets had total revenue of $2,538,000, cost of goods sold of $1,035,000 (before adjustment for over-or underapplied overhead), administrative expenses of $634,700, and selling expenses of $413,900. During the year, overhead was applied using a predetermined rate of 71 percent of direct labor cost. Actual direct labor was $697,000. Actual overhead was $425,870. The ending balances in the inventory accounts (prior to adjustment for overapplied overhead) are:

Raw Materials Inventory$32,600

Work in Process Inventory78,600

Finished Goods Inventory44,300

1.Calculate net income treating the amount of overrapplied overhead as immaterial and assigning it to Cost of Goods Sold.

2.Calculate net income treating the amount of overapplied overhead as material and apportioning it to the appropriate inventory accounts and Cost of Goods Sold. (Round answer to the nearest whole dollar, e.g. 5,275 and proportions to 3 decimal places, e.g. 15.253.)

Explanation / Answer

1)Applied overhead =Rate *Actual direct labor cost

                                   = .71 * 697000

                                 = $ 494,870

Overapplied overhead = 494870-425870=69000

2)Allocate overapplied overhead among work in process ,finished goods inventory and cost of goods sold

Allocate 69000 in 78600 :44300 :1035000            [78600+44300+1035000= 1157900]

Overhead allocated to cost of goods sold = 69000 * 1035000/1157900

                                                                         = 61686

sales 2,538,000 less:expenses COGS (1035000- 69000) -966000 Administration expense -634700 selling expense -413900 net income 523400

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