Birmingham Bowling Ball Company (BBBC) uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 20x3, consisted of one job (no. 3088), which was carried on the year-end balance sheet at $78,400. There was no finished-goods inventory on this date.
BBBC applies manufacturing overhead to production on the basis of direct-labor cost. Budgeted totals for 20x4 for direct labor and manufacturing overhead are $2,100,000 and $2,730,000, respectively.
Actual results for the year follow.
- Direct material used $2,800,000
- Direct labor 2,175,000
- Indirect material used 32,500
- Indirect labor 1,430,000
- Factory depreciation 870,000
- Factory insurance 29,500
- Factory utilities 415,000
- Selling and administrative expenses 1,080,000
- Total $8,832,000
Job no. 3088 was completed in January 20x4; there was no work in process at year-end. All jobs produced during 20x4 were sold with the exception of job no. 3154, which contained direct-material costs of $78,000 and direct-labor charges of $42,500. BBBC charges any under- or overapplied overhead to Cost of Goods Sold.
Problem 3-43
Job-Order Costing; Focus on Manufacturing Overhead (LO 2, 4)
5. BBBC's applied overhead: $2,827,500
6. Overapplied overhead: $50,500
Required:
1. Determine the company's predetermined overhead application rate.
2. Determine the additions to the Work-in-Process Inventory account for direct material used, direct labor, and manufacturing overhead.
3. Compute the amount BBBC would disclose as finished-goods inventory on the December 31, 20x4, balance sheet.
4. Prepare the journal entry needed to record the year's completed production.
5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessary journal entry to record its disposition.
6. Determine BBBC's 20x4 cost of goods sold.
7. Would it be appropriate to include selling and administrative expenses in either manufacturing overhead or cost of goods sold? Briefly explain.