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What is cost of goods manufactured?

Maxxon Fixures Company's follows a job-order costing system. The  manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. The company had no beginning or ending inventories in the current month. During the month, the company’s transactions included the following:
           
Manufacturing overhead incurred
$1,000,000
Manufacturing overhead applied
904,000
Direct labor incurred
856,000
Direct materials issued to production
720,000
Indirect materials issued to production
64,000

Part (a)      What was the cost of goods manufactured?
 
Part (b)      What was the amount of cost of goods sold?


Part (a) The cost of goods manufactured for the month would be determined as follows:

Work in process, beginning of period
$              0
Direct materials issued to production
   720,000
Direct labor cost incurred
856,000
Manufacturing overhead cost applied
     904,000
Total manufacturing costs
2,480,000
Less: work in process, end of period
              (0)
Cost of goods manufactured
$2,480,000


Part (b) First, determine whether overhead was underapplied or overapplied as follows:

Actual overhead costs
$1,000,000
Overhead costs applied to production
    904,000
Amount of underapplied overhead
$     96,000


Then, determine the cost of goods sold as follows:

Finished goods, beginning of period
$              0
Add: Cost of goods manufactured
 2,480,000
Cost of goods available for sales
2,480,000
Less: finished goods, end of period
                0
Unadjusted cost of goods sold
2,480,000
Add: Underapplied overhead
       96,000
Adjusted cost of goods sold
$2,596,000


 

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