Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):

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Selling expenses $ 210,000
Purchases of raw materials $ 266,000
Direct labor   ?
Administrative expenses $ 159,000
Manufacturing overhead applied to work in process $ 372,000
Actual manufacturing overhead cost $ 357,000


Inventory balances at the beginning and end of the year were as follows:


  Beginning of Year End of Year
Raw materials $ 52,000   $ 38,000  
Work in process   ?   $ 23,000  
Finished goods $ 35,000     ?  


The total manufacturing costs for the year were $675,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $664,000; and the net operating income was $30,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold.


Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)






Osborn Manufacturing uses a predetermined overhead rate of $19.20 per direct labor-hour. This predetermined rate was based on a cost formula that estimates $249,600 of total manufacturing overhead for an estimated activity level of 13,000 direct labor-hours.

The company actually incurred $247,000 of manufacturing overhead and 12,500 direct labor-hours during the period.


1. Determine the amount of underapplied or overapplied manufacturing overhead for the period.

2. Assume that the company’s underapplied or overapplied overhead is closed to Cost of Goods Sold. Would the journal entry to dispose of the underapplied or overapplied overhead increase or decrease the company’s gross margin? By how much?


The following cost data relate to the manufacturing activities of Chang Company during the just completed year:


Manufacturing overhead costs incurred:    
Indirect materials $ 16,700
Indirect labor   147,000
Property taxes, factory   9,700
Utilities, factory   87,000
Depreciation, factory   273,900
Insurance, factory   11,700
Total actual manufacturing overhead costs incurred $ 546,000
Other costs incurred:    
Purchases of raw materials (both direct and indirect) $ 417,000
Direct labor cost $ 77,000
Raw materials, beginning $ 21,700
Raw materials, ending $ 31,700
Work in process, beginning $ 41,700
Work in process, ending $ 71,700

The company uses a predetermined overhead rate of $26 per machine-hour to apply overhead cost to jobs. A total of 21,400 machine-hours was used during the year.


1. Compute the amount of underapplied or overapplied overhead cost for the year.

2. Prepare a schedule of cost of goods manufactured for the year.



Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead cost to jobs on the basis of machine-hours. At the beginning of the year, the company used a cost formula to estimate that it would incur $4,275,000 in manufacturing overhead cost at an activity level of 570,000 machine-hours.

The company spent the entire month of January working on a large order for 12,400 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:


a. Raw materials purchased on account, $321,000.

b. Raw materials used in production, $261,000 (80% direct materials and 20% indirect materials).

c. Labor cost accrued in the factory, $162,000 (one-third direct labor and two-thirds indirect labor).

d. Depreciation recorded on factory equipment, $62,500.

e. Other manufacturing overhead costs incurred on account, $85,600.

f. Manufacturing overhead cost was applied to production on the basis of 40,870 machine-hours actually worked during the month.

g. The completed job for 12,400 custom-made machined parts was moved into the finished goods warehouse on January 31 to await delivery to the customer. (In computing the dollar amount for this entry, remember that the cost of a completed job consists of direct materials, direct labor, and applied overhead.)


1. Prepare journal entries to record items (a) through (f) above [ignore item (g) for the moment].

2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

3. Prepare a journal entry for item (g) above.

4. If 10,900 of the custom-made machined parts are shipped to the customer in February, how much of this job’s cost will be included in cost of goods sold for February?