Reference no: EM13535601

Finlon Upholstery Inc. uses a job-order costing system to collect manufacturing costs. The company's work-in-process on 31st December, 2001, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no ended-goods inventory on this date.

Finlon applies manufacturing overhead to manufacture on the basis of direct-labor cost. (The budgeted direct-labor cost is the company's practical capability, in terms of direct-labor hours multiplied by the budgeted direct-labor rate.) Budgeted totals for 2002 for direct manufacturing and labor overhead are $4,200,000 and $5,460,000, correspondingly. Actual results for the year are as follows:

Actual Results

Direct Materials Used $5,600,000.00

Direct Labor $4,350,000.00

Indirect Material Used $65,000.00

Indirect Labor $2,860,000.00

Factory Depreciation $1,740,000.00

Factory Insurance $59,000.00

Factory Utilities $830,000.00

Selling and Administrative Expenses $2,160,000.00

Total $17,664,000.00

Job no. 2077 was done in January 2002, and there was no work in procedure at year-end. All jobs produced in 2002 were sold with the exception of Job no. 2143, which contained direct-material costs of $156,000 and direct-labor charges of $85,000. The corporation charges any under- or over-applied overhead to the cost of goods sold category.

Using the above information, do the subsequent:

1. Evaluate the company's predetermined overhead application rate.

2. Determine the additions to the work-in-process inventory account for the direct material used, manufacturing overhead and direct labor.

3. Evaluate the finished-goods inventory for the 12/31/01 balance sheet.

4. Evaluate the over-applied or under-applied overhead at year-end.

5. Describe if it is appropriate to include administrative and selling expenses in the cost of goods sold category.