Sonia Company manufactures custom-made fire trucks and had the following estimates and actual costs for 2014:

Estimate Actual

Direct materials used $1,400,000 $1,500,000

Direct Labor 1,000,000 1,050,000

Indirect Labor 400,000 375,000

Factory Insurance 25,000 25,000

Factory maintenance 100,000 50,000

Factory rent 575,000 550,000

Factory equipment depreciation 100,000 100,000

Work-in-process inventory is $0 at 1/1/14 and $70,000 at 12/31/14. Finished goods inventory is $80,000 at 1/1/14 and $65,000 at 12/31/14.

Step 1: Would Sonia use job order costing or process costing? Why

Step 2: Sonia uses a predetermined overhead rate based on direct labor costs. What is the predetermined rate for the current

year?

Step 3: Compute the amount of under - or over-applied overhead for the year.

Step 4: Determine the cost of goods manufactured for the year.