Question
The Solomon Company uses a job order costing system using a predetermined overhead rate at its only plant. The plant has only two departments, a
The Solomon Company uses a job order costing system using a predetermined overhead rate at its only plant. The plant has only two departments, a machining department and a finishing department. The 2020 budget for the plant was:
Machining Finishing
Department Department Total Manufacturing Overhead $10,000,000 $8,000,000 $18,000,000
Direct labor costs $ 900,000 $4,000,000 $ 4,900,000
Direct labor hours 40,000 160,000 200,000
Machine-hours 500,000 100,000 600,000
Assume that the company started the year with no inventories, ended the year with no work-in-process inventory, and had just one job, Job 431, in finished goods inventory.
Job 431's completed job cost record showed the following:
Machining Finishing
Department Department Total
Direct Materials used $12,000 $38,000 $50,000
Direct labor hours 80 520 600
Machine-hours 1,200 100 1,300
- Suppose Solomon's costing system used only a single indirect cost pool (total manufacturing overhead) and allocated manufactured overhead cost using direct labor hours. Assuming all under or overallocated overhead is charged to cost of goods sold, what is the ending inventory of finished goods?
B. Suppose that while direct labor hours are a better cost driver than machine hours for allocating overhead from the Finishing Department, and machine hours are a better cost driver for allocating overhead from the of the Machining Department. Based on the information given, is it more likely that Job 431 was charged too much or too little manufacturing overhead with Solomon's current "peanut butter costing approach"? Present calculations and a short explanation to support your choice.
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