WYOMING CORPORATION24 The following information comes from t

WYOMING CORPORATION(2-4) The following information comes from the accounting records of WYOMING CORPORATION, manufacturer of custom coffee mugs, for its manufacturing activities for the year ended September 30 2014: Actual manufacturing overhead costs incurred: Indirect materials $15,000 Indirect labor 130,000 Property taxes - factory 8,000 Utilities - factory 70,000 Depreciation - factory 240,000 Insurance - factory 10,000 Total actual manufacturing overhead incurred $473,000 Other costs charged to jobs: Direct materials $375,000 Direct labor 60,000 Inventory information: Work in process, beginning $40,000 Work in process, ending 70,000 Finished goods, beginning 120,000 Finished goods, ending 135,000 The company uses a predetermined overhead rate to apply overhead to production on the basis of machine hours, since coffee-mug production is a highly automated process. Overhead for the year was originally budgeted at $475,000 and 19,000 machine hours were anticipated. During the year, based on all of the jobs produced, a total of 19,400 machine hours were recorded for the year. REQUIRED: 1. Why would the fact that production is highly automated have anything to do with the company’s chose of machine hours as a basis for allocating overhead? 2. What was the predetermined overhead rate for the year? 3. What was the amount of overhead applied for the year? 4. What was the amount of mis-applied overhead for the year? Explain how to account for this and WHY that is proper. 5. Use T-Accounts and post the amounts above in their appropriate places. Use an overhead control account to post actual and applied overhead amounts. 6. Determine the cost of goods manufactured and construct a Schedule of Cost of Goods Manufactured for the year ended September 30, 2014. 7. Determine the cost of goods sold, and construct a Schedule of Cost of Goods Sold for the year ended September 30, 2014 using the chart below: Assume the following additional information about the operations of WYOMING for the year: 8. Prepare an income statement for WYOMING for the year ended September 30, 2014 (ignore income taxes).

Solution

Solution:- calculation of pre determined overhead rate:-

pre determined overhead rate= budgeted overheads/ budgeted machine hours

=475000/19000=$25per hour.

Amount of overhead applied during this year:-

19400 hours * $25 per hour=485000

Amount of mis - applied overhead for the year:-

actual overheads incurred = $473000

applied overheads= $485000

over absorption of overheads= $485000- $473000=$12000

income statement:-