Pac Inc. uses a job-order costing system in which any underapplied or overapplie

Question

Pac Inc. uses a job-order costing system in which any underapplied or overapplied overhead for the period is closed out to cost of goods sold. In May the company completed job I07W that consisted of 20,000 units of one of the company's standard products. No other jobs were in process during the month. The job cost sheet for job I07W shows that the total cost for the job was $1,054,000. During the month, the actual manufacturing overhead cost incurred was $304,600 and the manufacturing overhead cost applied to job I07W was $292,000. And during the month, 7,000 completed units from job I07W were sold. No other products were sold. Required: Determine the cost of goods sold that would appear on the income statement for May. Show your work!

Explanation / Answer

Under-applied overhead = 304600-292000= $12600 Cost of goods sold before adjustment=1054000/20000*7000= $368900 Cost of goods sold that would appear on the income statement =368900+12600= $381500

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