Ester Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. There is no variable manufacturing overhead. The standard cost card for the company's only product is as follows:
The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $168,000 and budgeted activity of 24,000 hours.
During the year, the company applied fixed overhead to the 22,600 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $149,800. Of this total, $83,800 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $66,000 related to depreciation of manufacturing equipment.
Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.

-When applying fixed manufacturing overhead to production,the Work in Process inventory account will increase (decrease)by:
A) $83,800
B) ($83,800)
C) $126,560
D) ($126,560)

Question

Ester Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs. There is no variable manufacturing overhead. The standard cost card for the company's only product is as follows:
  The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $168,000 and budgeted activity of 24,000 hours.
During the year, the company applied fixed overhead to the 22,600 units in work in process inventory using the predetermined overhead rate multiplied by the number of direct labor-hours allowed. Actual fixed overhead costs for the year were $149,800. Of this total, $83,800 related to items such as insurance, utilities, and indirect labor salaries that were all paid in cash and $66,000 related to depreciation of manufacturing equipment.
Assume that all transactions are recorded on the below worksheet, which is similar to the worksheet shown in your text except that it has been divided into two parts so that it fits on one page. The beginning balances in each of the accounts have been given. PP&E (net) stands for Property, Plant, and Equipment net of depreciation.
  
-When applying fixed manufacturing overhead to production,the Work in Process inventory account will increase (decrease)by:
A) $83,800 
B) ($83,800) 
C) $126,560 
D) ($126,560)

Quizplus · Accepted Answer

Work in Process increases by the standard amount of hours allowed for the actual output multiplied by the predetermined overhead rate, which is (22,600 units × 0.80 hours per unit) × $7.00 per hour = 18,080 hours × $7.00 per hour = $126,560.

Ester Corporation Manufactures One Product