Jupiter Inc. has provided the following data for the month of August. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month. Manufacturing overhead for the month was underapplied by $2,000.
The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.
-The finished goods inventory at the end of August after allocation of any underapplied or overapplied overhead for the month is closest to:
A) $33,540
B) $33,532
C) $34,580
D) $34,588

Question

Jupiter Inc. has provided the following data for the month of August. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.  Manufacturing overhead for the month was underapplied by $2,000.
The company allocates any underapplied or overapplied overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.
-The finished goods inventory at the end of August after allocation of any underapplied or overapplied overhead for the month is closest to:
A) $33,540 
B) $33,532 
C) $34,580 
D) $34,588

Quizplus · Accepted Answer

To determine the finished goods inventory at the end of August, we need to calculate the total cost of goods manufactured.

Direct Materials: $20,000 
Direct Labor: $15,000 
Manufacturing Overhead Applied: $18,000

Total Manufacturing Costs: $53,000

Since there were no beginning inventories, the cost of goods manufactured is also $53,000.

To allocate the underapplied manufacturing overhead of $2,000, we need to calculate the overhead rate:

Overhead rate = Manufacturing Overhead Applied / Total Manufacturing Costs 
Overhead rate = $18,000 / $53,000 
Overhead rate = 0.3396

Next, we allocate the underapplied manufacturing overhead:

Work in Process: $53,000 x 0.3396 = $18,000 (debit) 
Finished Goods: $0 x 0.3396 = $0 
Cost of Goods Sold: $35,000 x 0.3396 = $11,866 (credit)

The adjusted finished goods inventory is:

Finished Goods Inventory = Cost of Goods Manufactured - Cost of Goods Sold 
Finished Goods Inventory = $53,000 - ($35,000 - $11,866) 
Finished Goods Inventory = $30,866 + $2,000 (allocated underapplied overhead) 
Finished Goods Inventory = $32,866

Therefore, the closest choice is (C) $34,580.