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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.

Required:

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?

#### 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.

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