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Job Order Costing System: Compute WIP Inventory

Garcia, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended:

Machining Department Assembly Department
Budgeted manufacturing overhead $4,000,000 $3,080,000
Actual manufacturing overhead 4,260,000 3,050,000
Budgeted direct-labor cost (based on practical capacity) 1,500,000 5,600,000
Actual direct-labor cost 1,450,000 5,780,000
Budgeted machine hours (based on practical capacity) 400,000 100,000
Actual machine hours 425,000 110,000

The data that follow pertain to job no. 775, the only job in production at year-end.

Machining Department Assembly Department
Direct material $25,500 $6,600
Direct labor 27,900 58,600
Machine hours 370 150

Selling and administrative expense amounted to $2,500,000.

Required:

1. Assuming the use of normal costing, determine the predetermined overhead rates used in the Machining Department and the Assembly Department.

Predetermined overhead rate
Machining Department $ per machine hour
Assembly Department % of direct-labor cost

2. Compute the cost of the company's year-end work-in-process inventory. Total cost $

3. Determine whether overhead was under- or overapplied during the year in the Machining Department. (Omit the "$" sign in your response.)

overhead by $

4. Determine whether overhead was under- or overapplied during the year in the Assembly Department. (Omit the "$" sign in your response.)

overhead by $.

Solution Summary

The solution discusses using a job order costing system to compute WIP inventory and overhead application.

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