Garcia, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended:

The data that follow pertain to job no. 775, the only job in production at year-end.

Selling arid administrative expense amounted to $2,500,000.
Required:
1. Assuming the use of normal costing, determine the predetermined overhead rates used in the Machining Department and the Assembly Department.
2. Compute the cost of the company€™s year-end work-in-process inventory.
3. Determine whether overhead was under- or over applied during the year in the Machining Department
4. Repeat requirement (3) for the Assembly Department.
5. If the company disposes of under- or over applied overhead as an adjustment to Cost of Goods Sold, would the company€™s Cost of Goods Sold account increase or decrease? explain.
6. How much overhead would have been charged to the company€™s Work-in-Process account during the year?
7. Comment on the appropriateness of the company€™s cost drivers (i.e., the use of machine hours in Machining and direct labor cost inAssembly).

Transcribed Image Text:

Budgeted manufacturing overhead Actual manufacturing overhad.. Budgeted direct-labor cost (based on practical capacity). Actual direct-labor cost .. Budgeted machine hours (based on practical capacity) Actual machine hours... Machining Assembly Department Department . $4,000,000 $3,080,000 4,260,000 3,050,000 . .1,500,000 5,600,000 1,450,000 5,780,000 400,000 100,000 425,000 110,000 Machining Assembly Department Department Direct material Direct labor.. Machine hour.... $24,500 6,700 27,900 58,600 150 360