Calculating Inventory

Finlon Upholstery Inc. uses a joborder costing system to accumulate manufacturing costs. The

company’s workinprocess on December 31, 2001, consisted of one job (no. 2077), which was

carried on the yearend balance sheet at $156,800. There was no finishedgoods inventory on this

date.

Finlon applies manufacturing overhead to production on the basis of directlabor cost. (The budgeted

directlabor cost is the company’s practical capacity, in terms of directlabor hours multiplied by the

budgeted directlabor rate.) Budgeted totals for 2002 for direct labor and manufacturing overhead

are $4,200,000 and $5,460,000, respectively. 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 completed in January 2002, and there was no work in process at yearend. All jobs

produced during 2002 were sold with the exception of Job no. 2143, which contained directmaterial

costs of $156,000 and directlabor charges of $85,000. The company charges any under or overapplied

overhead to the cost of goods sold category.

Using the above information, do the following:

•Calculate the company’s predetermined overhead application rate.

•Calculate the additions to the workinprocess inventory account for the direct material used, direct

labor, and manufacturing overhead.

•Calculate the finishedgoods inventory for the 12/31/02 balance sheet.

•Calculate the overapplied or underapplied overhead at yearend.

•Explain if it is appropriate to include selling and administrative expenses in the cost of goods sold

category.

Perform your calculations in an Excel spreadsheet and copy the calculations into a Word document.

Write a 1page paper in Word format. Apply APA standards to citation of sources. Use the following

file naming convention: LastnameFirstInitial_M1_A3.doc. For example, if your name is John Smith,

your document will be named SmithJ_M1_A3.doc.