Karpel Inc. has provided the following data for the month of April. 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 $4,000. The Corporation 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 manufacturing overhead applied during the month in those accounts.
The finished goods inventory at the end of April after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to:
A)$44,040
B)$45,240
C)$45,242
D)$44,038

Question

Karpel Inc. has provided the following data for the month of April. 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 $4,000. The Corporation 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 manufacturing overhead applied during the month in those accounts.
The finished goods inventory at the end of April after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to:
A)$44,040 
B)$45,240 
C)$45,242 
D)$44,038

Quizplus · Accepted Answer

To find the finished goods inventory, we need to add up the total cost of finished goods. We can find this by adding up the cost of goods manufactured (which includes the manufacturing overhead applied) and subtracting any goods sold during the month.

Cost of direct materials used: $186,000
Cost of direct labor: $105,000
Manufacturing overhead applied: $129,000

Total manufacturing cost: $420,000

Add in beginning work in process inventory: $0

Subtract out ending work in process inventory: $54,760

Cost of goods manufactured: $365,240

Subtract out goods sold during the month: $320,000

Finished goods inventory: $45,240

Finally, we need to allocate the underapplied manufacturing overhead of $4,000. Since manufacturing overhead is applied based on direct labor hours, we can calculate the allocation rate by dividing the total manufacturing overhead applied by the total direct labor hours:

$129,000 / 10,500 hours = $12.29 per direct labor hour

We can then allocate the underapplied manufacturing overhead as follows:

Work in process: $0
Finished goods: $12.29 x 325 hours = $3,992.25 (rounded to $3,992)
Cost of goods sold: $7.71 x 325 hours = $2,507.75 (rounded to $2,508)

Adding these amounts to our finished goods inventory gives us a final inventory of:

$45,240 + $3,992 = $49,232

Since the question asks for the closest answer choice, B is the best option.