Dusk Industries produces industrial convection ovens.For the year,management estimated that total manufacturing overhead would be $2,978,760.Management decided to use direct labor hours to apply manufacturing overhead and budgeted 144,600 direct labor hours.The following information was compiled before an adjustment had been made to close Manufacturing Overhead Control: If Dusk closes the entire amount of under-or overapplied overhead to Cost of Goods Sold,what was the ending balance in that account?

Question

Dusk Industries produces industrial convection ovens.For the year,management estimated that total manufacturing overhead would be $2,978,760.Management decided to use direct labor hours to apply manufacturing overhead and budgeted 144,600 direct labor hours.The following information was compiled before an adjustment had been made to close Manufacturing Overhead Control:  If Dusk closes the entire amount of under-or overapplied overhead to Cost of Goods Sold,what was the ending balance in that account?

Quizplus · Accepted Answer

First, we need to calculate the predetermined overhead rate:
Predetermined overhead rate = Total Manufacturing Overhead / Direct Labor Hours
Predetermined overhead rate = $2,978,760 / 144,600 = $20.63 per direct labor hour

Next, we need to calculate the applied manufacturing overhead:
Applied Manufacturing Overhead = Predetermined Overhead Rate x Actual Direct Labor Hours
Applied Manufacturing Overhead = $20.63 x actual direct labor hours

Unfortunately, the question does not provide us with the actual direct labor hours, so we cannot calculate the actual applied manufacturing overhead. However, we do know that there is either underapplied or overapplied overhead, meaning that the actual applied manufacturing overhead is either less than or greater than the estimated manufacturing overhead.

If we assume that the applied manufacturing overhead is less than the estimated manufacturing overhead, then there is underapplied overhead. This means that Cost of Goods Sold needs to be increased by the amount of underapplied overhead to bring the total manufacturing overhead to the estimated amount:

Underapplied Overhead = Estimated Manufacturing Overhead - Actual Applied Overhead

Underapplied Overhead = $2,978,760 - Actual Applied Overhead

If we assume that the applied manufacturing overhead is greater than the estimated manufacturing overhead, then there is overapplied overhead. This means that Cost of Goods Sold needs to be decreased by the amount of overapplied overhead to bring the total manufacturing overhead to the estimated amount:

Overapplied Overhead = Actual Applied Overhead - Estimated Manufacturing Overhead

Overapplied Overhead = Actual Applied Overhead - $2,978,760

Since we do not have the actual direct labor hours or the actual applied manufacturing overhead, we cannot determine whether there is underapplied or overapplied overhead.

However, we do know that the total amount of manufacturing overhead needs to be brought to the estimated amount of $2,978,760. Therefore, we need to adjust Cost of Goods Sold by either adding or subtracting the amount of underapplied or overapplied overhead. The answer choices reflect these adjustments.

Calculating the correct adjustment requires additional information that is not provided in the question. Therefore, the best choice is based on the process of elimination using the given answer choices.

A) $4,795,826 - This answer suggests a significant decrease in cost of goods sold, which may be indicative of a large overapplied overhead amount. Therefore, this answer can be eliminated.

B) $4,932,174 - This answer suggests a moderate decrease in cost of goods sold, which may be indicative of a moderate overapplied overhead amount. Therefore, this is the best choice.

C) $4,780,170 - This answer suggests a significant decrease in cost of goods sold, which may be indicative of a large overapplied overhead amount. Therefore, this answer can be eliminated.

D) $4,947,830 - This answer suggests a moderate increase in cost of goods sold, which may be indicative of a moderate underapplied overhead amount. Therefore, this answer can be eliminated.

Dusk Industries Produces Industrial Convection Ovens