Company has OVERAPPLIED overhead of $50,000 for the year. Before the dispostion

Question

Company has OVERAPPLIED overhead of $50,000 for the year. Before the dispostion of the underapplied overhead, selected year end balance from the company accounting records were Sales $1,200,000 COGS $720,000 DM Inventory $36,000 WIP Inventory $54,000 FG Inventory $90,000 Under the company cost accounting system, over or under-applied overhead is assigned to appropriate inventories and COGS baed on year-end balances. In its year-end income statement, the company should report COGS of ? Please show work explain the answer . Thank you

Explanation / Answer

First let us find the % of the each of WIP,finished goods and cost of goods sold
work in progress=54000 (54000/(540000+90000+720000))=6.25%
Finished goods=90000 (90000/(540000+90000+720000))=10.42%
Cost of goods sold=72000 (720000/(540000+90000+720000))=83.33%

cost of goods sold:
Applied=720000
overapplied portion=(83.33%*500000)=41666.67
adjusted cost of goods sold=720000-41666.67=678333.33

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