CAGNAYO, ANTHONY JOHN

BSBA - HRM

MODULE 3 Quiz 3

Birmingham Bowling Ball Company (BBBC) uses a job-order costing system to accumulate manufacturing
costs. The company’s work-in-process on December 31, 20x3, consisted of one job (no. 3088), which
was carried on the year-end balance sheet at $78,400. There was no finished-goods inventory on this
date.
BBBC applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted
direct-labor cost is the company’s practical capacity, in terms of direct-labor hours, multiplied by
the budgeted direct-labor rate.) Budgeted totals for 20x4 for direct labor and manufacturing overhead
are $2,100,000 and $2,730,000, respectively. Actual results for the year follow.
Direct material used ................................................................................................................... $2,800,000
Direct labor ................................................................................................................................2,175,000
Indirect material used ....................................................................................................................... 32,500
Indirect labor ..............................................................................................................................1,430,000
Factory depreciation ...................................................................................................................... 870,000
Factory insurance ............................................................................................................................. 29,500
Factory utilities ..............................................................................................................................415,000
Selling and administrative expenses .............................................................................................1,080,000
Total ............................................................................................................................................ $8,832,000
Job no. 3088 was completed in January 20x4; there was no work in process at year-end. All jobs
produced
during 20x4 were sold with the exception of job no. 3154, which contained direct-material costs
of $78,000 and direct-labor charges of $42,500. BBBC charges any under- or overapplied overhead to
Cost of Goods Sold.

Required:
1. Determine the company’s predetermined overhead application rate.
2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct
labor, and manufacturing overhead.
3. Compute the amount BBBC would disclose as finished-goods inventory on the December 31,
20x4, balance sheet.
4. Prepare the journal entry needed to record the year’s completed production.
5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessary
journal entry to record its disposition.
6. Determine BBBC’s 20x4 cost of goods sold.
7. Would it be appropriate to include selling and administrative expenses in either manufacturing
overhead or cost of goods sold? Briefly explain.
1. Determine the company’s predetermined overhead application rate.

= 2,730,000 / 2,100,000 = 130% of direct labor cost

2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct
labor, and manufacturing overhead.

Direct material 2,800,000

Direct labor 2,175,000

Applied overhead (2,175,000 x 0.130) 2,827,500

Total 7,802,500

3. Compute the amount BBBC would disclose as finished-goods inventory on the December 31, 20x4,
balance sheet.

Direct material 78,000

Direct labor 42,500

Overhead applied (42,500X130%) 55,250

Total cost of finished goods ending inventory 175,750

4. Prepare the journal entry needed to record the year’s completed production.

Cost of goods manufactured = 78,400 + 7,802,500 = 7,880,900

JOURNAL ENTRY DEBIT CREDIT

Finished Goods Inventory $7,880,900

Work in Process $7,880,900

5. Compute the amount of under- or over applied overhead at year-end, and prepare the necessary
journal entry to record its disposition.

Indirect material used $32,500

Indirect labor $1,430,000

Factory depreciation $870,000

Factory insurance $29,500

Factory utilities $415,000

Total actual overhead = $2,777,000

Overhead applied = 2,175,000 x 130% = 2,827,500

Since the applied is higher than actual, overhead is over applied by 2,827,500 - 2,777,000 = $50,500.

JOURNAL ENTRY DEBIT CREDIT

Manufacturing Overhead $50,500

Cost of Goods Sold $50,500

6. Determine BBBC’s 20x4 cost of goods sold.

= 0 + 7,880,900 - 175,750 – 50,500

= $7,654,650

7. Would it be appropriate to include selling and administrative expenses in either manufacturing

overhead or cost of goods sold? Briefly explain.

No, it wouldn;t be appropriate because selling and administrative expenses are period costs means they
are not included in the product costs.