ACC 434 Chapter 4

2400 total 160000 100 3000 for finishing department

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2,400 Total \$160,000 1.00 \$3,000 For finishing department: Account Allocated Overhead in Dec. 31, 2008 Balance (4) Allocated Overhead in Dec. 31, 2008 Balance as a Percent of Total (5) = (4) ÷ \$100,000 Proration of \$13,000 Underallocated Overhead (6) = (5) × \$13,000 WIP 100 × \$50 = \$ 5,000 0.05 0.05 × \$13,000 = \$ 650 Finished Goods 400 × \$50 = 20,000 0.20 0.20 × \$13,000 = 2,600 Cost of Goods Sold 1,500 × \$50 = 75,000 0.75 0.75 × \$13,000 = 9,750 Total \$100,000 1.00 \$13,000 Account Dec. 31, 2008 Balance (Before Proration) (7) Underallocated/ Overallocated Overhead (8) = (3) – (6) Dec. 31, 2009 Balance (After Proration) (9) = (7) + (8) WIP 150,000 \$150 \$650 = \$ (500) \$ 149,500 Finished Goods 250,000 \$450 – \$2,600 = ( 2,150) 247,850 Cost of Goods Sold 1,600,000 \$2,400 – \$9,750 = (7,350) 1,592,650 Total \$2,000,000 \$(10,000) \$1,990,000 3. The first method is simple and Cost of Goods Sold accounts for 80% of the three account amounts. The amount of overallocated and underallocated overhead is also immaterial. Allocation to the other two accounts is minimal. Therefore, write-off to cost of goods sold is the most cost effective alternative.

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4-34 4-37 (35 min.) General ledger relationships, under- and overallocation. The solution assumes all materials used are direct materials. A summary of the T-accounts for Asher Company before adjusting for under- or overallocation of overhead follows: Direct Materials Control Work-in-Process Control 1-1-2008 36,000 Purchases 480,000 Material used for manufacturing 456,000 1-1-2008 24,000 Direct materials 456,000 Transferred to finished goods 1,128,000 12-31-2008 60,000 Direct manuf. Labor 432,000 Manuf. overhead allocated 576,000 12-31-2008 360,000 Finished Goods Control Cost of Goods Sold 1-1-2008 12,000 Transferred in from WIP 1,128,000 Cost of goods sold 1,080,000 Finished goods sold 1,080,000 12-31-2008 60,000 Manufacturing Overhead Control Manufacturing Overhead Allocated Manufacturing overhead costs 648,000 Manufacturing overhead allocated to work in process 576,000 1. From Direct Materials Control T-account, Direct materials issued to production = \$456,000 that appears as a credit. 2. Direct manufacturing labor-hours = Direct manufacturing labor costs Direct manufacturing wage rate per hour = hour per 18 \$ 000 , 432 \$ = 24,000 hours Manufacturing overhead allocated = Direct manufacturing labor hours × Manufacturing overhead rate = 24,000 hours × \$24 per hour = \$576,000 3. From the debit entry to Finished Goods T-account, Cost of jobs completed and transferred from WIP = \$1,128,000 4. From Work-in-Process T-account, Work in process inventory on 12/31/2008 = \$24,000 + \$456,000 + \$432,000 + \$576,000 – \$1,128,000 = \$360,000
4-35 5. From the credit entry to Finished Goods Control T-account, Cost of goods sold (before proration) = \$1,080,000 6. Manufacturing overhead underallocated = Debits to Manufacturing Overhead Control Credit to Manufacturing Overhead Allocated = \$648,000 – \$576,000 = \$72,000 underallocated 7. a. Write-off to Cost of Goods Sold will increase (debit) Cost of Goods Sold by \$72,000. Hence, Cost of Goods Sold = \$1,080,000 + \$72,000 = \$1,152,000. b. Proration based on ending balances (before proration) in Work in Process, Finished Goods, and Cost of Goods Sold. Account balances in each account after proration follows: Account (1) Account Balance (Before Proration) (2) Proration of \$72,000 Underallocated Manufacturing Overhead (3) Account Balance (After Proration) (4)=(2)+(3) Work in Process \$ 360,000 (24%) 0.24 × \$72,000 = \$17,280 \$ 377,280 Finished Goods 60,000 ( 4%) 0.04 × \$72,000 = 2,880 62,880 Cost of Goods Sold 1,080,000 (72% ) 0.72 × \$72,000 = 51,840 1,131,840 \$1,500,000 100% \$72,000 \$1,572,000 8. Asher’s operating income using write-off to Cost of Goods Sold and Proration based on

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