Managerial Accounting

Assignment 3: Calculating Inventory

Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 2001, 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 2002 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year are as follows:

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Actual ResultsDirect Materials Used$5,600,000.00Direct Labor$4,350,000.00Indirect Material Used$65,000.00Indirect Labor$2,860,000.00Factory Depreciation$1,740,000.00Factory Insurance$59,000.00Factory Utilities$830,000.00Selling and Administrative Expenses$2,160,000.00Total$17,664,000.00

Job no. 2077 was completed in January 2002, and there was no work in process at year-end. All jobs produced during 2002 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 over-applied overhead to the cost of goods sold category.

Using the above information, do the following:

  • Calculate the company’s predetermined overhead application rate.
  • Calculate the additions to the work-in-process inventory account for the direct material used, direct labor, and manufacturing overhead.
  • Calculate the finished-goods inventory for the 12/31/02 balance sheet.
  • Calculate the over-applied or under-applied overhead at year-end.
  • Explain if it is appropriate to include selling and administrative expenses in the cost of goods sold category.

Perform your calculations in an Excel spreadsheet and copy the calculations into a Word document.

Write a 1-page paper in Word format. Apply APA standards to citation of sources. Use the following file naming convention: LastnameFirstInitial_M1_A3.doc. For example, if your name is John Smith, your document will be named SmithJ_M1_A3.doc.

By the due date assigned, deliver your assignment to the Submissions Area.