Clyde Company gathered the following information for the year ended December 31, 2009:
$$\begin{array} { | l | r | }
\hline \text { Direct labor cost incurred } & \$ 165,000 \
\hline \text { Estimated manufacturing overhead costs } & \$ 231,000 \
\hline \text { Estimated direct labor cost } & \$ 3,080,000 \
\hline \text { Work in process inventory, Dec, 31, 2009 } & \$ 50,000 \
\hline \text { Finished goods inventory, Dec. 31, 2009 } & \$ 65,000 \
\hline \text { Cost of goods sold } & \$ 135,000 \
\hline \text { Estimated direct labor hours } & 308,000 \
\hline
\end{array}$$ Clyde Company uses a job order costing system. Assume that manufacturing overhead is underallocated on December 31, 2009, by $17,000. After closing out manufacturing overhead, what would the balance be in cost of goods sold?

Question

Clyde Company gathered the following information for the year ended December 31, 2009:
$$\begin{array} { | l | r | } 
\hline \text { Direct labor cost incurred } & \$ 165,000 \
\hline \text { Estimated manufacturing overhead costs } & \$ 231,000 \
\hline \text { Estimated direct labor cost } & \$ 3,080,000 \
\hline \text { Work in process inventory, Dec, 31, 2009 } & \$ 50,000 \
\hline \text { Finished goods inventory, Dec. 31, 2009 } & \$ 65,000 \
\hline \text { Cost of goods sold } & \$ 135,000 \
\hline \text { Estimated direct labor hours } & 308,000 \
\hline
\end{array}$$ Clyde Company uses a job order costing system. Assume that manufacturing overhead is underallocated on December 31, 2009, by $17,000. After closing out manufacturing overhead, what would the balance be in cost of goods sold?

Quizplus · Accepted Answer

When manufacturing overhead is underallocated, it means that the actual overhead costs were higher than what was applied to the jobs. To correct this, the underallocated amount is added to the cost of goods sold. Therefore, the adjusted cost of goods sold would be the original cost of goods sold ($135,000) plus the underallocated overhead ($17,000), resulting in a new cost of goods sold of $152,000.

Clyde Company Gathered the Following Information for the Year Ended