Chapter 3, Problem 46P

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.

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