Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 20

Assigning Costs: Missing Data

The following T-accounts represent November activity.

Additional Data

• Materials of $113,600 were purchased during the month, and the balance in the Materials Inventory account increased by $11,000.

• Overhead is applied at the rate of 150 percent of direct labor cost.

• Sales are billed at 180 percent of cost of goods sold before the over- or underapplied overhead is prorated.

• The balance in the Finished Goods Inventory account decreased by $28,600 during the month before any proration of under- or overapplied overhead.

• Total credits to the Wages Payable account amounted to $202,000 for direct and indirect labor.

• Factory depreciation totaled $48,200.

• Overhead was underapplied by $25,080. Overhead other than indirect labor, indirect materials, and depreciation was $198,480, which required payment in cash. Underapplied overhead is to be allocated.

• The company has decided to allocate 25 percent of underapplied overhead to Work-in-Process Inventory, 15 percent to Finished Goods Inventory, and the balance to Cost of Goods Sold. Balances shown in T-accounts are before any allocation.

Required

Complete the T-accounts.

Step 1 of 14

Cost flows through T-accounts:

• Manufacturing costs consist of direct materials, direct labor, and manufacturing overhead. 

• The product-costing systems used by manufacturing firms employ several manufacturing accounts. 

• The costs flow through several manufacturing accounts like work in process inventory account to finished goods inventory account and then to cost of goods sold account, finally reach the income summary account.