Rockville, Inc., which uses a job-costing system, began business on January 1, 20x3 and applies manufacturing overhead on the basis of direct-labor cost. The following information relates to 20x3:
· Budgeted direct labor and manufacturing overhead were anticipated to be $200,000 and $250,000, respectively.
· Job nos. 1, 2, and 3 were begun during the year and had the following charges for direct material and direct labor:
Job No. Direct Material Direct Labor Total
1 $145,000 $35,000 $180,000
2 $320,000 $65,000 $385,000 $565,000
3 $55,000 $80,000 $135,000
Total $520,000 $180,000 $700,000
· Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of cost. Job no. 3 remained in production.
· Actual manufacturing overhead by year-end totaled $233,000. Rockville adjusts all under- and overapplied overhead to cost of goods sold.
Required:
A. Compute the company's predetermined overhead application rate.
B. Compute Rockville's ending work-in-process inventory.
C. Determine Rockville's sales revenue.
D. Was manufacturing overhead under- or overapplied during 20x3? By how much?
E. Present the necessary journal entry to handle under- or overapplied manufacturing overhead at year-end.
F. Does the presence of under- or overapplied overhead at year-end indicate that Rockville's accountants made a serious error? Briefly explain.