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    Changing underapplied or overapplied overhead costs

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    Account balances are as follows:

    Manufacturing overhead $240,000 underapplied
    Work in process 100,000
    Finished goods 300,000
    Cost of goods sold 800,000

    If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of
    a) $1,440,000.
    b) $640,000.
    c) $1,040,000.
    d) $960,000

    Figure 4-2

    Erickson Company made the following predictions for 2009:

    Factory overhead costs $300,000
    Direct labor hours 50,000 hours
    Machine hours 100,000 hours

    Job A2 (which was started and completed in May) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.

    Refer to Figure 4-2. If factory overhead is applied based on machine hours, the cost of Job A2 for the Erickson Company is
    a) $69,000.
    b) $75,000.
    c) $63,000.
    d) $66,000.

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    Solution Summary

    This solution helps go through the effects of changing underapplied or overapplied overhead costs.