Problem 4-28 ErgoFurn, Inc. manufactures ergonomically designed computer furnitu

Question

Problem 4-28 ErgoFurn, Inc. manufactures ergonomically designed computer furniture. ErgoFurn uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs No Units Accumulated Cost 20,000 15,000 25,000 Item CC723 CH291 PS812 Computer caddy Chair Printer stand $900,000 431,000 250,000 $1,581,000 On November 30, ErgoFurn's Raw Materials Inventory account totaled $668,000, and its Finished Goods Inventory totaled $3,456,400. ErgoFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totaled $4,500,000, and the company planned to use 900,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 830,000 machine hours, total factory overhead amounted to $4,274,500, and Cost of Goods Sold was $8,750,250 ErgoFurn purchased $638,000 in raw materials in December and incurred the following costs for jobs in process that month: Materials Machine Direct Labor Direct Labor No Hours Hours Cost Issued $155,000 $13,800 CC723 CH291 PS812 DS444 12,000 4,400 $211,000 19,500 14,000 11,600 3,600 14,300 12,500 $122,400 $43,200 $200,500 $138,000 $252,000 The following jobs were completed in December and transferred to the Finished Goods Inventory ob No. CC723 Computer caddy 20,000 CH291 DS444 Item Units Chair Desk 15,000 5,000 Assume that ErgoFurn sold 15,000 computer caddies, 12,000 chairs, and 4,500 desks in December. ErgoFurn 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

Overhead was underapplied for the year by $ 270,000.

Operhead applied = Total machine hours used x Predetermined Overhead Rate = (49,900 + 830,000) x $ 5 = $ 4,399,500.

Actual overhead incurred = $ 395,000 + $ 4,274,500 = $ 4,669,500

Overhead underapplied = $ 249,500 - $ 395,000 = $ (145,500)

To close the underapplied manufacturing overhead to Cost of Goods Sold Account:

Account Balances before overhead allocation and adjustment:

Work in Process: $ 759,000.

Finished Goods :$ 3,913,750

Cost of Goods sold: $ 10,500,250

Debit Credit Cost of Goods Sold 270,000 Manufacturing Overhead 270,000

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