The following account balances and amounts for the month of January were obtaine
ID: 2488053 • Letter: T
Question
The following account balances and amounts for the month of January were obtained from the general ledger of the Smith Company.
Beginning Work-in-Process (WIP) Inventory Balance $ 0
Ending WIP Inventory Balance 50,000
Total Direct Material Costs Used in January Production 150,000
Total Direct Labor Costs for January Production 70,000
Also note that the Smith Company applies a predetermined manufacturing overhead rate based on direct labor costs (dollars) to allocate (or charge) manufacturing overhead costs to the many different production jobs it performs. At the beginning of the year, the company originally budgeted $450,000 of manufacturing overhead for the year and estimated $150,000 of direct labor costs for the year.
Part A. What was the predetermined manufacturing overhead rate that the company originally calculated and applied to each individual production job throughout the year? Remember that the company implements this rate based upon direct labor costs (dollars), so this rate will be expressed as either a percentage or a multiplier (e.g., 150% or a 1.5 times multiplier). Please show your calculation.
Part B. What was the total amount of manufacturing overhead that was applied (allocated) to all of the production jobs worked for January? Hint: you can calculate this amount using the result from Part A above along with the direct labor cost for January.
Part C. Calculate the total manufacturing costs for the month of January. Hint: you’ll need to use the answer from Part B plus some other data provided above.
Part D. Calculate the Cost of Goods Manufactured (COGM) for the month of January. Hint: you’ll need to use the answer from Part C plus some other data provided above.
Explanation / Answer
Smith Company All Amounts in $ Part A Predetermined Manufacturing Overhead Rate = Budgeted Overhead Costs / Budgeted Labor Costs = $ 450,000 / $ 150,000 300% Part B Manufacturing Overheads allocated to all jobs for January = 300% of Labor Costs = 300% of $ 70,000 = $ 210,000. Part C Total Manufacturing Costs for January Direct Materials 150000 Direct Labor 70000 Manufacturing Overheads 210000 Total Manufacturing Costs 430000 Part D Cost of Goods Manufactured Total Manufacturing Costs per C above 430000 Add : Opening Work-in-Process Inventory 0 430000 Less : Closing Work-in-Process Inventory 50000 Cost of Goods Manufactured 380000