Jaquish Inc. has provided the following data for the month of January. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.
Manufacturing overhead for the month was underapplied by $6,000.
The company allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.
-The finished goods inventory at the end of January after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to:
A) $25,720
B) $27,653
C) $25,707
D) $27,640

Question

Jaquish Inc. has provided the following data for the month of January. There were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.
  Manufacturing overhead for the month was underapplied by $6,000.
The company allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.
-The finished goods inventory at the end of January after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to:
A) $25,720 
B) $27,653 
C) $25,707 
D) $27,640

Quizplus · Accepted Answer

Allocating underapplied manufacturing overhead increases the balances in the inventory and cost of goods sold accounts.
Finished goods inventory at the end of January after allocation of underapplied manufacturing overhead = $26,680 + [($6,400/$40,000) × $6,000] = $26,680 + (16% × $6,000) = $27,640