Opticom. inc. a manufacturer of ber optic communications equipment. uses a job-order costing sys- tem. Since the production process is heavily automated. manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate 'of $30 per machine hour is based on budgeted manufacturing overhead costs of $2,400,000 and a budgeted activity level of 80.000 machine hours (the company's estimated practical capacity). Operations for the year have been completed. and all of the accounting entries have been made for the year except the application of manu- facturing overhead to the jobs worked on during December. the transfer of costs from Work in Process 10 Finished Goods for the jobs completed in December. and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and for the month of December are presented in the following table. Jobs '1'] 1-007. N1 {-013. and N1 l-OIS were completed during December. All completed jobs except Job NI [-013 had been turned over to customers by the close of business on December 31. Work-in-Process December Activity Balance Direct Direct Machine Job No. November 30 Material Labor Hours T11-007 $174,000 3,000 $ 9,000 300 N11-013 110,000 8,000 24,000 1,000 N11-015 -0- 51,200 53,400 1,400 D12-002 . -0- 75,800 40,000 2,500 D12-003 -0 52,000 33,600 800 Total .......... $284,000 $190,000 $160,000 6,000 Operating Activity Activity through November 30 December Activity Actual manufacturing overhead incurred: Indirect material .. $ 250,000 $ 18,000 Indirect labor ... 690,000 60,000 Utilities 490,000 44,000 Depreciation ...... 770,000 70,000 Total overhead $2,200,000 $192,000 Other data: Raw-material purchases* .... $1,930,000 $196,000 Direct-labor costs $1,690,000 $160,000 Machine hours 73,000 6,000 Account Balances at Beginning of Year January 1 Raw-material inventory * $210,000 Work-in-process inventory .... 120,000 Finished-goods inventory .... 250,000 "Raw material purchases and raw-material inventory consist of both direct and indirect materials. The balance of the Raw-Material Inventory account as of December 31 of the year just completed is $170,000. Required: 1. Explain why manufacturers use a predetermined overhead rate to apply manufacturing overhead to their jobs. 2. How much manufacturing overhead would Opticom have applied to jobs through November 30 of the year just completed? 3. How much manufacturing overhead would have been applied to jobs during December of the year just completed? 4. Determine the amount by which manufacturing overhead is overapplied or underapplied as of December 31 of the year just completed. 5. Determine the balance in the Finished-Goods Inventory account on December 31 of the year just completed. Prepare a Schedule of Cost of Goods Manufactured for Opticom, Inc. for the year just completed. (Hint: In computing the cost of direct material used, remember that Opticom includes both direct and indirect material in its Raw-Material Inventory account.) (CMA, adapted)
