Question

Before prorating the manufacturing overhead costs at the end of 2016, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,600 and $21,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2016. During the year, manufacturing overhead costs of $75,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $78,600 at the end of 2016. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration

Answer 1

Answer: $60238

Explanation:

First and foremost, we need to calculate the over applied overhead which will be the difference between the actual overhead and the applied overhead. This will be:

= $78600 - $75000

= $3600

Then, the portion allocated to the cost of goods sold will be:

= $3600 × $57600 /($57600 + $21000)

= $3600 × $57600/$78600

= $3600 × 0.7328

= $2638

Therefore, the cost of Goods Sold after the proration will be:

= $57600 + $2638

= $60238