Fairlea Inc. (Fairlea) uses a job cost system which applies overhead on the basis of direct labour
Question:
Fairlea Inc. (Fairlea) uses a job cost system which applies overhead on the basis of direct labour hours. At the beginning of the quarter, Fairlea estimates total manufacturing costs of $112,500 and total direct labour hours of 15,000.
At the end of the quarter, Fairlea tabulates the following actual information.
Purchase of raw materials (all direct) | $200,000 |
Direct labour (average hourly rate of $25) | 400,000 |
Manufacturing overhead costs | 100,000 |
Change in inventories: | |
Increase in raw materials | $25,000 |
Increase in work in process | 16,000 |
Increase in finished goods | 30,000 |
Required: 1. Calculate the cost of goods manufactured. 2. Calculate the cost of goods sold before prior to any adjustment for under or overapplied overhead. 3.make a journal entry to close any under or overapplied manufacturing overhead cost to cost of goods sold. Is such an entry appropriate in this situation? Why or why not? 4. Analyze the under or overapplied manufacturing overhead cost into two separate components: amount due to incorrect estimate of the annual manufacturing overhead costs and an amount due to incorrect estimate of the annual direct labour cost.
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ