Determine the companys predetermined overhead application rate

Determine the companys predetermined overhead application rate

Exercise 2-28
Consider the following costs that were incurred during the current year:
1. Tire costs incurred by Ford Motor Company.
2. Sales commissions paid to the sales force of Dell Inc.
3. Wood glue consumed in the manufacture of Thomasville furniture.
4. Hourly wages of refinery security guards employed by ExxonMobil Corporation.
5. The salary of a financial vice president of Hewlett Packard.
6. Advertising costs of Coca-Cola.
7. Straight-line depreciation on factory machinery of Boeing Corporation.
8. Wages of assembly-line personnel of Whirlpool Corporation.
9. Delivery costs on customer shipments of Ben & Jerry’s ice cream.
10. Newsprint consumed in printing The New York Times.
11. Plant insurance costs of Texas Instruments.
12. Glass costs incurred in light-bulb manufacturing of General Electric.

Required: Evaluate each of the preceding and determine whether the cost is ( a ) a product cost or a period cost, ( b ) variable or fixed in terms of behavior, and ( c ) for the product costs only, whether the cost is properly classified as direct material, direct labor, or manufacturing overhead. Item 1 is done as an example:
Tire costs: Product cost, variable, direct material


Exercise 3-46
Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s
work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on
the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The
budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours,
multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing
overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year
follow.
Direct material used ......................................................................................... $ 5,600,000
Direct labor ...................................................................................................... 4,350,000
Indirect material used ....................................................................................... 65,000
Indirect labor ................................................................................................... 2,860,000
Factory depreciation ......................................................................................... 1,740,000
Factory insurance ............................................................................................ 59,000
Factory utilities ................................................................................................ 830,000
Selling and administrative expenses .................................................................. 2,160,000
Total ............................................................................................................ $17,664,000

Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced
during 20x2 were sold with the exception of job no. 2143, which contained direct-material costs
of $156,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead
to Cost of Goods Sold.

Required:
1. Determine the company’s predetermined overhead application rate.
2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct
labor, and manufacturing overhead.
3. Compute the amount that the company would disclose as finished-goods inventory on the
December 31, 20x2, balance sheet.
4. Prepare the journal entry needed to record the year’s completed production.
5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessary
journal entry to record its disposition.
6. Determine the company’s 20x2 cost of goods sold.
7. Would it be appropriate to include selling and administrative expenses in either manufacturing
overhead or cost of goods sold? Briefly explain.