Athena Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow. $$\begin{array} { l r }
\text { Direct material used } & \$ 250,000 \
\text { Direct labor } & 300,000 \
\text { Manufacturing overhead } & 816,000
\end{array}$$
The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.
Required:
A. Determine the company's predetermined overhead application rate.
B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
C. Compute the company's adjusted cost of goods sold.
D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

Question

Athena Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow. $$\begin{array} { l r } 
\text { Direct material used } & \$ 250,000 \
\text { Direct labor } & 300,000 \
\text { Manufacturing overhead } & 816,000
\end{array}$$ 
The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.
Required: 
A. Determine the company's predetermined overhead application rate.
B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
C. Compute the company's adjusted cost of goods sold.
D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

Quizplus · Accepted Answer

The Answer of Athena Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow. $$\begin{array} { l r } 
\text { Direct material used } & \$ 250,000 \
\text { Direct labor } & 300,000 \
\text { Manufacturing overhead } & 816,000
\end{array}$$ 
The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.
Required: 
A. Determine the company's predetermined overhead application rate.
B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
C. Compute the company's adjusted cost of goods sold.
D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

Athena Corporation Uses a Job-Cost System and Applies Manufacturing Overhead