Question 3 Swifty, Inc. manufactures ergonomically designed computer furniture.

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Question 3 Swifty, Inc. manufactures ergonomically designed computer furniture. Swifty uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs ob No. Item Units Accumulated Cost CC723 Computer caddy 21,000 $1,000,000 431,000 266,000 $1,697,000 CH291 Chair 20,000 P5812Printer stand 25,000 On November 30, Swifty's Raw Materials Inventory account totaled $682,000, and its Finished Goods Inventory totaled $3,498,400. Swifty applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totaled $4,850,000, and the company planned to use 970,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 841,000 machine hours, total manufacturing overhead amounted to $4,294,500, and Cost of Goods Sold was $4,284,500. Swifty purchased $8,760,250 in raw materials in December and incurred the following costs for jobs in process that month: Materials Machine Direct Labor Direct Labor ob No. CC723 CH291 PS8 Issued $185,000 $19,800 $219,000 $254,000 Hours Hours Cost 15,000 4,400 19,900 20,000 14,100 4,000 19,300 13,500 $123,400 $48,200 $216,500 $144,000 12 The following jobs were completed in December and transferred to the Finished Goods Inventory: Units CC723 Computer caddy 21,000 20,000 5,000 Job No. Item CH291 Chair DS444 Desk Assume that Swifty sold 14,000 computer caddies, 11,100 chairs, and 4,500 desks in December Swifty incurred $395,000 in manufacturing overhead in December. Given that expenditure, was manufacturing overhead under- or overapplied for the year? By how much? Overhead

Explanation / Answer

Estimated manufacturing overhead for the year = $4,850,000

Planned machine hours for the year = 970,000

Manufacturing overhead rate = Estimated manufacturing overhead/Planned machine hours

= 4,850,000/970,000

= $5 per machine hour

Actual manufacturing overhead for the first eleven months = $4,294,500

Actual manufacturing overhead for the month of December = $395,000

Hence, actual total manufacturing overhead for the year = 4,294,500 + 395,000

= $4,689,500

Actual machine hours for the first eleven months = 841,000

Actual machine hours for the month of December = 15,000 + 4,400 + 19,900 + 20,000

= 59,300

Hence, actual total machine hours for the year = 841,000 + 59,300

= 900,300

Applied manufacturing overhead = Manufacturing overhead rate x Actual machine hours

= 5 x 900,300

= $4,501,500

Since applied manufacturing overhead was less than actual manufacturing overhead,hence manufacturing overhead was under applied.

Underapplied Manufacturing overhead = Actual manufacturing overhead - Applied manufacturing overhead

= 4,689,500 - 4,501,500

= $188,000

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