Question

The following information is for Punta Company for July: Factory overhead costs were applied to jobs at the predetermined rate of $51.50 per labor hour. Job S incurred 6,265 labor hours; Job T used 4,365 labor hours. Job S was shipped to customers during July. Job T was still in process at the end of July. The overapplied or underapplied overhead to the Cost of Goods Sold account was closed at the end of July. Factory utilities, factory depreciation, and factory insurance incurred are summarized as follows: Utilities $ 16,950 Depreciation 49,500 Insurance 19,800 Total $ 86,250 f. Direct materials and indirect materials used are as follows: Job S Job T Total Material A $ 33,000 $ 75,750 $ 108,750 Material B 14,700 37,700 52,400 Subtotal $ 47,700 $ 113,450 $ 161,150 Indirect materials 215,500 Total $ 376,650 g. Direct labor incurred for the two jobs and indirect labor are as follows: Job S $ 64,500 Job T 54,000 Indirect labor 151,000 Total $ 269,500
Required:
1. Calculate the total manufacturing cost for Job S and Job T for July. (Round your intermediate calculations and final answers to 2 decimal places.)
2. Calculate the amount of overapplied or underapplied overhead and state whether the Cost of Goods Sold account will be increased or decreased by the adjustment.?

Answer 1

Answer:

Solution 1 : Total Manufacturing Cost of Job S is $434,847.5 while for Job T is $ 392,247.5

Solution 2 : The amount of overheads has been over-applied and the Cost of Goods Sold will decrease by $94,695

Explanation:

Solution 1

Particulars                                             Job S ($)                Job T ($)

Direct material                                47,700               113,450

Direct labor                                        64,500                54,000

Overhead Applied (Hours* $51.50)      322,647.5       224,797.5

Total manufacturing cost                 434,847.5       392,247.5

Solution 2

In order to calculate the amount of over-applied or under-applied, we will take the difference between the overheads applied and the actual overheads incurred during the period. If the applied overheads are more than the actual then the amount has been over-applied and the Cost of Goods Sold will decrease. However, in case the overheads were under-applied then the Cost of Goods Sold would increase. The calculation has been done below:

Actual Overhead = $86,250 + $215,500 + $151,000 = $452,750

Applied overhead = 322,647.5 + 224,797.5 = $547,445

Over-applied/Under-applied overhead = Applied overhead - Actual Overhead

547,445 - 452,750 = $94,695. The overheads has been over-applied.  

Cost of Goods Sold account will be decreased by $94,695.