Petters Inc. has provided the following data for the month of November. There we

Question

Petters Inc. has provided the following data for the month of November. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month. Manufacturing overhead for the month was overapplied by $10,000. The company allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The work in process inventory at the end of November after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to:

Explanation / Answer

Solution:

Overapplied Manufacturing Overhead situation is happened when Estimated Manufacturing Overheads are charged more than actually incurred manufacturing overhead. Therefore it is necessary to deduct the overapplied overhead from the respective account on which it has already been charged by using a Supplimentary Rate.

Suppliementary Rate = Total Overapplied manufacturing overhead / Total Cost

The amount of overapplied manufacturing overhead to be duduced from Work In Process = Total Cost of Work IN Process x Supplimentary Rate

= $6,720 x $10,000 / $397,340

= $169

The work in process inventory at the end of November after allocation (deduction) of overapplied manufacturing overhead for the month is closest to $6,551 ($6,720 - $169)

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