Lambson Inc. uses a job-order costing system in which any underapplied or overap

Question

Lambson Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. In January the company completed job Z65N that consisted of 31,000 units of one of the company's standard products. No other jobs were in process during the month. The total manufacturing cost on job Z65N's job cost sheet was $1,909,600. The manufacturing overhead for the month was underapplied by $15,300. During the month, 21,000 completed units from job Z65N were sold. No other products were sold during the month. The cost of goods sold that would appear on the income statement for January, after adjustment for any underapplied or overapplied overhead, is closest to: $1,272,600 $1,909,650 $1,924,900 $1,308,900

Explanation / Answer

Overheads are under applied when Actual Overheads are greater than applied Overheads.

As Lambson Inc uses a system which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month. So under application of Overheads will be charged to cost of goods sold.

Logically, Under applied Overheads for 21000 units will be charged to cost of goods sold & Under applied Overheads for 10000 units will be charged to finished goods.

But as given in question, Lambson Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed to cost of goods sold at the end of the month.

So whole under applied overhead cost will be charged to Cost of goods sold.

The cost of goods sold that would appear on the income statement for January, after adjustment for any underapplied or overapplied overhead:

$1,909,600 + 15300 = $ 1,924,900

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.