Question

12. Fun Corp makes playgrounds for schools and day care centers. At the end of May, the total ending balance of work in process inventory account was $14,670 comprising of three unfinished jobs, Job# 56 with $4,200 in materials and 15 hours worked; job # 58 with $6,470 in materials and 18 hours worked; and last it had job #61 with $1,540 in materials and 8 hours worked. The total of cost of goods sold for the month was $15,330. The company had no inventory left in the finished goods account. Fun pays its workers $20 an hour and overhead is 200% of total labor cost paid. Manufacturing overhead for May was overallocated by $1,200. What is the adjusted ending balance for Job #58 if the overallocated amount is disposed of by prorating using ending balances?

Answer 1

Answer:

$  7,248

Explanation:

Prorating:

                       Before      Rate                          

WIP                    14,670   14,670/30,000 = 0.489

FInished Goods        0

COGS                15,330  15,330 / 30,000 = .511

Total                   30,000

Allocation of overapplied overhead to WIP

1,200 x 0.489 = $ 586.8

Allocation to Job #58

Overhead Job #58: Total cost:

Materials 6,470

18 hours x $20 = 360 labor cost

360 labor cost x 200% overhead rate = 720 applied overhead

Total cost (before prorating): 7,550

586.8/14,670 x 7,550 = 302

Adjusted balance:

Materials 6,470

Labor cost: 360

Overhead: 720 - 302 = 418

Total 7,248

We subtract as the overhead was overapplied, we capitalzie more cost than we should.