Mallette Inc. uses a job-order costing system in which any underapplied or overapplied overhead...

Question:

Mallette Inc. uses a job-order costing system in which any underapplied or overapplied overhead is closed out to cost of goods sold at the end of the month. The company has provided the following data for May:

Direct materials $74,000
Direct labor cost $93,000
Manufacturing overhead cost incurred $66,000
Manufacturing overhead cost applied $63,000

Inventories: Beginning Ending
Work in process $12,000 $20,000
Finished goods $38,000 $36,000

The cost of goods sold that appears on the income statement for May and that has been adjusted for any underapplied or overapplied overhead is closest to:

a. $220,000

b. $227,000

c. $222,000

d. $221,000

Overapplied or Underapplied Manufacturing Overhead

Overapplied overhead exists when the applied overhead is higher than the actual overhead costs incurred. On the other hand, underapplied overhead exist when the applied overhead is lower than the actual overhead costs incurred. These variances are disposed to cost of goods sold when the amount is deemed to be immaterial to the company. However, if the amount is material, the amount is apportioned to cost of goods sold, work in process, and finished goods.

Answer and Explanation: 1

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The answer is b. $227,000

The cost of goods sold, before adjusting for over or underapplied inventory is calculated as follows:

Direct materials $7...

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Under- or Over-Applied Manufacturing Overhead

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Chapter 4 / Lesson 6
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Learn about overhead, underapplied or overapplied. Examine how to find these types of overhead via two different methods. See examples of overhead types and methods.


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