In the past year, Oak Crafters Cabinets had total revenue of $2,500,000, cost of goods sold of $1,000,000 (before adjustment for over- or underapplied overhead), administrative expenses of $600,000, and selling expenses of $400,000. During the year, overhead was applied using a predetermined rate of 70 percent of direct labor cost. Actual direct labor was $700,000. Actual overhead was $450,000.The ending balances in the inventory accounts (prior to adjustment for overapplied overhead) are:
Raw Materials Inventory........$32,000
Work in Process Inventory........80,000
Finished Goods Inventory........48,000

a. Calculate net income treating the amount of overrapplied overhead as immaterial and
assigning it to Cost of Goods Sold.
b. Calculate net income treating the amount of overapplied overhead as material and apportioning it to the appropriate inventory accounts and Cost of Goods Sold. Round to the nearest whole dollar.
c Discuss the impact of the alternative treatments.

  • CreatedSeptember 12, 2013
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