The accounting records of Omar Company contained the following information for l
ID: 2605117 • Letter: T
Question
The accounting records of Omar Company contained the following information for last year:
Beginning
Ending
Direct materials inventory........................
$9,000
$7,000
Work in process inventory.......................
$17,000
$31,000
Finished goods inventory........................
$10,000
$15,000
Manufacturing costs incurred
Direct materials used...............................
$72,000
Overhead applied.....................................
$24,000
Direct labor cost (10,000 hours)..............
$80,000
Depreciation.............................................
$10,000
Rent.........................................................
$12,000
Taxes........................................................
$8,000
Cost of goods sold...................................
$157,000*
*
Selling and administrative costs incurred
Advertising..............................................
$35,000
Rent.........................................................
$20,000
Clerical.....................................................
$25,000
3. If Omar Company applies overhead to jobs on the basis of direct labor hours and Job 3 took 120 hours, how much overhead should be applied to that job?
4. The cost of goods manufactured for the year (prior to any under/over-applied adjustments) was:
Beginning
Ending
Direct materials inventory........................
$9,000
$7,000
Work in process inventory.......................
$17,000
$31,000
Finished goods inventory........................
$10,000
$15,000
Manufacturing costs incurred
Direct materials used...............................
$72,000
Overhead applied.....................................
$24,000
Direct labor cost (10,000 hours)..............
$80,000
Depreciation.............................................
$10,000
Rent.........................................................
$12,000
Taxes........................................................
$8,000
Cost of goods sold...................................
$157,000*
*
Selling and administrative costs incurred
Advertising..............................................
$35,000
Rent.........................................................
$20,000
Clerical.....................................................
$25,000
Explanation / Answer
Solution 3:
Applied overhead cost = $24,000
Direct labor hours = 10000
Overhead absorption rate = $24,000/10000 = $2.4/hour
Required direct labor hours for job 3 = 120
Applied overhead to Job 3 = 120*2.40 = $288
Solution 4:
Let X is number of unit produced
Then no of unit sold = Opening stock + Unit produced - Finished stock
= 10000 + X - 15000 = X-5000
Cost of (X-5000) units =$157,000.......Equation 1
Unit processed = Closing WIP + Unit produced - Opening WIP = 31000 + X -17000 = X + 14000
Cost of unit processed = 72000 + 24000 + 80000 = $176,000
Cost of (X+14000) units = $176,000....Equaiton 2
On solving equation 1 & 2:
Cost of 19000 units = $19,000
per unit cost produced = $1 per unit
Therefore
Cost of (X-5000) units = 157000
(X-5000)*1 = 157000
X = 162000 units
Therefore number of unit manufactured are 162000 units and cost of goods manufactured = 162000*1 = $162,000
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