Echher Corporation uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. During the year the company's Finished Goods inventory account was debited for $218,000 and credited for $218,500. The ending balance in the Finished Goods inventory account was $13,000. At the end of the year, manufacturing overhead was overapplied by $36,700.The balance in the Finished Goods inventory account at the beginning of the year was:
A) $13,500
B) $36,700
C) $500
D) $13,000

Question

Quizplus · Accepted Answer

To find out the beginning balance in the Finished Goods inventory account, we need to use the following formula:

Beginning Balance + Cost of Goods Manufactured - Cost of Goods Sold = Ending Balance

We are given that the Finished Goods inventory account was debited for $218,000 and credited for $218,500. This means that the cost of goods manufactured during the year was $218,000.

We are also given that the ending balance in the Finished Goods inventory account was $13,000. However, we need to adjust for the overapplied overhead of $36,700. This means that the actual cost of goods manufactured was $218,000 - $36,700 = $181,300.

Now we can use the formula to solve for the beginning balance:

Beginning Balance + $181,300 - Cost of Goods Sold = $13,000
Beginning Balance + $181,300 - (Beginning Balance + $218,500 - $218,000) = $13,000
Beginning Balance + $181,300 - Beginning Balance - $318,500 + $218,000 = $13,000
$62,800 = Beginning Balance

Therefore, the beginning balance in the Finished Goods inventory account was $13,500 (Choice A).

Echher Corporation Uses a Job-Order Costing System and Applies Overhead