Calculating Inventory

Finlon Upholstery Inc. uses a job­order costing system to accumulate manufacturing costs. The

company’s work­in­process on December 31, 2001, consisted of one job (no. 2077), which was

carried on the year­end balance sheet at $156,800. There was no finished­goods inventory on this

date.

Finlon applies manufacturing overhead to production on the basis of direct­labor cost. (The budgeted

direct­labor cost is the company’s practical capacity, in terms of direct­labor hours multiplied by the

budgeted direct­labor rate.) Budgeted totals for 2002 for direct labor and manufacturing overhead

are $4,200,000 and $5,460,000, respectively. Actual results for the year are as follows:

Actual Results

Direct Materials Used $5,600,000.00

Direct Labor $4,350,000.00

Indirect Material Used $65,000.00

Indirect Labor $2,860,000.00

Factory Depreciation $1,740,000.00

Factory Insurance $59,000.00

Factory Utilities $830,000.00

Selling and Administrative Expenses $2,160,000.00

Total $17,664,000.00

Job no. 2077 was completed in January 2002, and there was no work in process at year­end. All jobs

produced during 2002 were sold with the exception of Job no. 2143, which contained direct­material

costs of $156,000 and direct­labor charges of $85,000. The company charges any under­ or overapplied

overhead to the cost of goods sold category.

Using the above information, do the following:

•Calculate the company’s predetermined overhead application rate.

•Calculate the additions to the work­in­process inventory account for the direct material used, direct

labor, and manufacturing overhead.

•Calculate the finished­goods inventory for the 12/31/02 balance sheet.

•Calculate the over­applied or under­applied overhead at year­end.

•Explain if it is appropriate to include selling and administrative expenses in the cost of goods sold

category.

Perform your calculations in an Excel spreadsheet and copy the calculations into a Word document.

Write a 1­page paper in Word format. Apply APA standards to citation of sources. Use the following

file naming convention: LastnameFirstInitial_M1_A3.doc. For example, if your name is John Smith,

your document will be named SmithJ_M1_A3.doc.

 

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