Altman 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$250,000Direct labor300,000Manufacturing overhead816,000The 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 Altman adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.Required: A. Determine the company's
predetermined overhead application rate.B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.C. Compute the company's adjusted cost of goods sold.D. 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?
What will be an ideal response?
A. $800,000 ÷ 50,000 = $16 per machine hour
| B. | Applied overhead (51,500 × $16) | $824,000 |
| ? | Actual overhead | 816,000 |
| ? | ? | ? |
| C. | Cost of goods sold, as reported | $2,960,000 |
| ? | Less: Overapplied overhead | 8,000 |
| ? | Cost of goods sold, adjusted | $2,952,000 |
D. The company could have allocated the overapplication to work in process, finished goods, and cost of goods sold. Although this method is acceptable, it is not suggested in this case because of the immaterial dollar amount in relation to cost of goods sold.
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