Problem:
XYZ Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow.
Direct Material Used $250,000
Direct Labor 300,000
Manufacturing Overhead 816,000
The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and XYZ adjusts under- or over applied overhead at year-end to Cost of Goods Sold.
Required to answer the following questions:
Q1. Determine the company's predetermined overhead application rate.
Q2. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
Q3. Compute the company's cost of goods sold.
Q4. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?