Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20×1, 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 20×2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow. 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 20×2; there was no work in process at year-end. All jobs produced during 20×2 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 Cost of Goods Sold. Directions: You are to do the following: Calculate the companies 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/x2 balance sheet. Calculate the over-applied or under applied overhead at year end. Explain if it is appropriate to include the selling and administrative expenses within cost of goods sold.
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