Tondre Inc.has provided the following data for the month of July: The cost of goods sold that is adjusted for underapplied or overapplied overhead and that appears on the income statement for July is:

Question

Tondre Inc.has provided the following data for the month of July:  The cost of goods sold that is adjusted for underapplied or overapplied overhead and that appears on the income statement for July is:

Quizplus · Accepted Answer

To find the cost of goods sold adjusted for underapplied or overapplied overhead, we need to use the formula:

Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory

We're given that beginning finished goods inventory was $75,000 and ending finished goods inventory was $66,000. To find the cost of goods manufactured, we need to calculate the total manufacturing costs for the month:

Direct materials: $60,000
Direct labor: $30,000
Manufacturing overhead applied: $114,000

Total manufacturing costs = $60,000 + $30,000 + $114,000 = $204,000

Now we need to adjust for underapplied/overapplied overhead. We're told that actual overhead costs for the month were $116,000, while overhead applied was $114,000. This means that overhead was underapplied by $2,000. To adjust for this, we add $2,000 to the cost of goods sold:

Adjusted cost of goods sold = $75,000 + $204,000 - $66,000 + $2,000 = $215,000

However, the question asks for the cost of goods sold as it appears on the income statement. We're also given that the company has a favorable overhead variance for the month. This means that the actual overhead costs were less than expected, so overhead costs would be lower and cost of goods sold would be lower. Therefore, the closest answer choice is B) $198,000.