Calculate over-applied or under-applied overhead at year-end

Managerial Accounting Assignment 3: Calculating Inventory

Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 2001, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.

Finlon 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 2002 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year are as follows:

Actual Results

Direct Materials Used


Direct Labor


Indirect Material Used


Indirect Labor


Factory Depreciation


Factory Insurance


Factory Utilities


Selling and Administrative Expenses




Job no. 2077 was completed in January 2002, and there was no work in process at year-end. All jobs produced during 2002 were sold with the exception of Job no. 2143, which contained direct-material costs of $156,000 and direct-labor charges of $85,000. The company charges any under- or over-applied overhead to the cost of goods sold category.

Using the above information, do the following:

• Calculate the company's predetermined overhead application rate.
• Calculate the additions to the work-in-process inventory account for the direct material used, direct labor, and manufacturing overhead.
• Calculate the finished-goods inventory for the 12/31/02 balance sheet.
• Calculate the over-applied or under-applied overhead at year-end.
• Explain if it is appropriate to include selling and administrative expenses in the cost of goods sold category.

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