Before prorating the manufacturing overhead costs at the end of 2012, the Cost o

Question

Before prorating the manufacturing overhead costs at the end of 2012, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $70,550 and $23,600 in them, respectively. There was no Work-in-Process at the beginning or end of 2012. During the year, manufacturing overhead costs of $90,200 were actually incurred. The balance in the Applied Manufacturing Overhead was $95,950 at the end of 2012. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?

Explanation / Answer

1) Caluclation of Under or Over head Applied : Balance in Manufacturign Overhead at End =(1)             95,950 Actual Applied Overhead is = (2)             90,200 Over Applied Overheads (1-2)               5,750 2) Proportion to be applied on cost of goods sold: 5750*(70550/(70550+23600))               4,309

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