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    Computing overhead rate, variances and cost of goods sold

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    Athens Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow.

    The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.


    A. Determine the company's predetermined overhead application rate.
    B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
    C. Compute the company's cost of goods sold.
    D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

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    Solution Preview

    Required A
    Predetermined overhead application rate = $800,000/50,000 machine hours = $16 per machine hour

    Required B
    NOTE: The actual overhead is an ASSUMED figure since the information given DID NOT provide for this. Hence, you have to UPDATE the ...

    Solution Summary

    This solution assists in computing the overhead rate, variances and cost of goods sold.