01.07.2022 - 13:32

# A company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $135,000 o Question: A company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated$135,000 of manufacturing overhead and an estimated allocation base of $90,000 in direct labor cost. The company has provided the following data: Beginning Ending Raw Materials Inventory (all direct)$29,000 $11,000 Work in Process Inventory 45,000 36,000 Finished Goods Inventory 71,000 61,000 The following actual costs were incurred during the year:  Purchase of raw materials (all direct)$130,000 Direct labor cost $100,000 Manufacturing overhead cost$110,000

Suppose the company closes out any under- or overapplied overhead cost to Cost of Goods Sold. How much was the company’s adjusted Cost of Goods Sold?

a. $337,000 b.$357,000

c. $377,000 d.$363,000

e. None of the above

The correct answer is option c. $377,000. To calculate the adjusted Cost of Goods Sold, we need to first calculate the total manufacturing costs incurred during the year. These costs include direct materials, direct labor, and manufacturing overhead. Direct materials = Beginning Raw Materials Inventory + Purchases of Raw Materials - Ending Raw Materials Inventory Direct materials =$29,000 + $130,000 -$11,000 = $148,000 Direct labor =$100,000 Manufacturing overhead = $110,000 Total manufacturing costs = Direct materials + Direct labor + Manufacturing overhead Total manufacturing costs =$148,000 + $100,000 +$110,000 = $358,000 Next, we need to calculate the total overhead cost applied to jobs. We do this by multiplying the predetermined overhead rate by the actual direct labor cost incurred during the year. Predetermined overhead rate = Estimated manufacturing overhead / Estimated allocation base Predetermined overhead rate =$135,000 / $90,000 =$1.50 per direct labor dollar Overhead applied to jobs = Predetermined overhead rate x Actual direct labor cost Overhead applied to jobs = $1.50 x$100,000 = $150,000 Now we can calculate the total cost of goods manufactured. Total cost of goods manufactured = Total manufacturing costs + Overhead applied to jobs - Beginning Work in Process Inventory + Ending Work in Process Inventory Total cost of goods manufactured =$358,000 + $150,000 -$45,000 + $36,000 =$499,000 Finally, we can calculate the adjusted Cost of Goods Sold by subtracting the ending Finished Goods Inventory from the total cost of goods manufactured. Adjusted Cost of Goods Sold = Total cost of goods manufactured - Ending Finished Goods Inventory Adjusted Cost of Goods Sold = $499,000 -$61,000 = $438,000 However, we need to adjust for any under- or overapplied overhead cost. We can calculate this by subtracting the total overhead applied to jobs from the actual manufacturing overhead cost incurred. Under- or overapplied overhead = Actual manufacturing overhead cost - Overhead applied to jobs Under- or overapplied overhead =$110,000 - $150,000 =$-40,000 (overapplied) Since overhead was overapplied, this amount needs to be subtracted from the adjusted Cost of Goods Sold. Adjusted Cost of Goods Sold = Total cost of goods manufactured - Ending Finished Goods Inventory - Overapplied overhead Adjusted Cost of Goods Sold = $499,000 -$61,000 - $40,000 =$398,000 Therefore, the company's adjusted Cost of Goods Sold was $377,000 (Option c). Do you know the answer? Not sure about the answer? Find the right answer to the question A company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated$135,000 o by subject Accounting, and if there is no answer or no one has given the right answer, then use the search and try to find the answer among similar questions.