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Topics: Manufacturing, Inventory, Finished good Pages: 5 (709 words) Published: March 29, 2014
Garrison 13e Practice Exam – Chapter 3

Print these pages. Answer each of the following questions, explaining your answers or showing your work, as appropriate, and then compare your solutions to those provided at the end of the practice exam.

1.Closet Depot, Inc. had the following estimated costs for next year:

Sales commissions
$600,000
Direct labor
440,000
Salary of production supervisor
280,000
Rent on factory equipment
128,000
Direct materials
120,000
Advertising expense
88,000
Indirect materials
40,000

The company estimates that 64,000 direct labor hours will be worked and 80,000 machine hours will be incurred during the year.

If overhead is applied on the basis of direct labor hours, what will be the overhead rate per hour?

2.Energetica Company’s predetermined overhead rate is based on direct labor hours. At the beginning of the current year, the company estimated that its manufacturing overhead would total $440,000 during the year. During the year, the company incurred $400,000 in actual manufacturing overhead costs. The Manufacturing Overhead account showed that overhead was underapplied by $16,000 during the year. If the predetermined overhead rate was $40.00 per direct labor hour, how many hours were worked during the year? 3.Lotus Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $400,000 and direct labor hours would be 40,000. The actual figures for the year were $430,000 for manufacturing overhead and 42,000 direct labor hours. Is manufacturing overhead underapplied or overapplied for the year? By how much?

4.Rollerston Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. Wagner had no beginning or ending inventories in the current month. During the month, the company’s transactions included the following:

Manufacturing overhead cost incurred
$1,000,000
Manufacturing overhead cost applied
904,000
Direct labor cost 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?

GNB 13e Practice Exam Solutions – Chapter 3

1.Solution (Learning Objective 3):
If overhead is applied on the basis of direct labor hours, the predetermined overhead rate would be calculated as follows:

Indirect materials
$ 40,000
Rent on factory equipment
128,000
Salary of production supervisor
280,000
Estimated manufacturing overhead costs
448,000
Estimated direct labor hours
 64,000
Predetermined overhead rate
$7.00/DLH

Note that direct materials and direct labor are product costs but are not a part of manufacturing overhead costs, which only include indirect factory costs. Sales commissions and advertising expenses would be considered a part of selling and administrative expenses, and are thus period rather than product costs.

2.Solution (Learning Objectives 5 and 8):
First, determine the amount of overhead applied to production by reference to the information about the Manufacturing Overhead account. Amount underapplied = Actual overhead – Amount applied to production Amount underapplied = $400,000 – Amount applied to production = $16,000; Amount applied to production = $384,000 Then, solve for the direct labor hours here (the activity base for the overhead rate). Manufacturing overhead applied = Predetermined overhead rate x Direct labor hours = $384,000 = $40.00 per direct labor hour x Actual direct labor hours; Actual direct labor hours = 9,600

3.Solution (Learning Objectives 3, 5, and 8):
First, calculate the predetermined overhead rate (based on direct labor...
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