Case study of finlon upholstery


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

$5,600,000.00

Direct Labor

$4,350,000.00

Indirect Material Used

$65,000.00

Indirect Labor

$2,860,000.00

Factory Depreciation

$1,740,000.00

Factory Insurance

$59,000.00

Factory Utilities

$830,000.00

Selling and Administrative Expenses

$2,160,000.00

Total

$17,664,000.00

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 12/31/01 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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Accounting Basics: Case study of finlon upholstery
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