Question :
Nicole Limited is a company that constructs machinery to customer orders, using a normal job-order cost system. It applies manufacturing overhead to production using a prearranged rate. This overhead rate is set at the starting of each fiscal year by forecasting the year's overhead and relating it to direct labor costs. The budget for 2012 was as given:
Direct labour
$1,806,500
Manufacturing overhead
$1,047,770
As at the end of the year, two jobs were incomplete. These were 1768B, with net direct labour charges of $114,800, and 1819C, with total direct labour charges of $390,680. On these jobs, machine hours were 287 hours for 1768B and 647 hours for 1819C. Direct materials issued for 1768B amounted to $223,160, and for 1819C they amounted to $420,770.
Net charges to the Manufacturing Overhead Control account for the year were $902,710, and direct labour charges made to all jobs amounted to $1,582,810, showing 247,561 direct labour hours.
There were no starting inventories. In addition to the ending work in process just explained, the ending finished goods inventory account showed a balance of $719,020. Sales for the year amounted to $6,206,948; cost of goods sold totalled $3,932,060; and general, and sales, and administrative expenses were $1,856,600.
The given amounts for inventories and the cost of goods sold have not been adjusted for any over- or under-application of manufacturing overhead to production. It is the company's practice to assign any over- or under-applied overhead to inventories and the cost of goods sold.
1. Evaluate the under- or over-applied manufacturing overhead for 2012.
2. Prorate the amount evaluated in based on the ending balances (before prorating) of Work in Process, Finished Goods, and Cost of Goods Sold.