Greenlaw Products uses job order costing and applies overhead to products using direct labor hours. Greenlaw has determined that their predetermined overhead is $4.00 per direct labor hour when an estimated 200,000 direct labor hours are incurred
During 2011 Greenlaw actually incurred a total of 215,000 direct labor hours and actual overhead costs ended up being $900,000. Greenlaw has no ending work-in-process or finished goods inventories. Required: A. What were Greenlaw's estimated total overhead costs for the year? B. By how much was overhead over- or underapplied? C. Assuming that cost of goods sold was $3,000,000 prior to the adjustment for over- or underapplied overhead, what will be the cost of goods sold amount after the year-end adjustment?
A. $800,000 calculated as follows: $4.00 = X ΒΈ 200,000; X = $800,000
B. Underapplied by $40,000 [$900,000 - (215,000 hours x $4)]
C. $3,040,000 ($3,000,000 + $40,000 underapplied = $3,040,000)
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