Gammaro Precision Tooling applies factory overhead using machine hours and number of component parts as cost-allocation bases. In 20X0, actual factory overhead incurred was $119,000 and applied factory overhead was $126,000. Before disposition of underapplied or overapplied factory overhead, the cost of good sold was $505,000, gross profit was $55,000, and ending inventories were as follows: Direct Material $20,000 WIP $72,000 Finished Goods $99,000 Total Inventories $191,000 1. Was factory overhead overapplied or underapplied? By how much? 2. Assume that Gammaro writes off overapplied or underapplied factory overhead as an adjustment to cost of goods sold. Compute adjusted gross profit. 3. Assume that Gammaro prorate overapplied or underapplied factory overhead based on end-of-year unadjusted balances. Compute adjusted gross profit. 4. Assume that actual factory overhead was $128,000 instead of $119,000, and that Gammaro writes off overapplied or underapplied factory overhead as an adjustment to cost of goods sold. Compute adjusted gross profit.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Gammaro Precision Tooling applies factory
Direct Material $20,000
WIP $72,000
Finished Goods $99,000
Total Inventories $191,000
1. Was factory overhead overapplied or underapplied? By how much?
2. Assume that Gammaro writes off overapplied or underapplied factory overhead as an adjustment to cost of goods sold. Compute adjusted gross profit.
3. Assume that Gammaro prorate overapplied or underapplied factory overhead based on end-of-year unadjusted balances. Compute adjusted gross profit.
4. Assume that actual factory overhead was $128,000 instead of $119,000, and that Gammaro writes off overapplied or underapplied factory overhead as an adjustment to cost of goods sold. Compute adjusted gross profit.
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