Y Company Reported the Following Actual Costs Data for the Year

question 15

Essay

Y Company reported the following actual costs data for the year:
$\begin{array} { l r } \text { Purchase of raw materials (all direct) } & \$ 200,000 \\\text { Direct labour (average hourly rate of } \$ 20 ) & 320,000 \\\text { Manufacturing overhead costs } & 100,000 \\\text { Change in inventories: } & \\\text { Increase in raw materials } & \$ 20,000 \\\text { Increase in work in process } &16,000 \\\text { Increase in finished goods }&32,000\end{array}$
Y Company used a predetermined overhead rate based on direct labour hours. Estimated annual manufacturing overhead cost and direct labour hours were $150,000 and 20,000, respectively.
Required:
a. What was the pre-determined manufacturing overhead rate?
b. Calculate the cost of goods manufactured.
c. What was the cost of goods sold before adjusting for any under or overapplied overhead?
d. By how much was manufacturing overhead cost under or overapplied?
e. Prepare a summary journal entry to close any under or overapplied manufacturing overhead cost to cost of goods sold. Is such an entry appropriate in this situation? Why or why not?
f. Analyze the under or overapplied manufacturing overhead costs calculated in part c above into two separate components: amount due to incorrect estimate of the annual manufacturing overhead costs and an amount due to incorrect estimate of the annual direct labour cost.

---

Definitions:

Ledger Entries

Records of financial transactions within a company’s general ledger, detailing accounts affected and the amounts for each transaction.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts, thereby preparing the books for the next period.

Adjusted Trial Balance

A list of all the accounts and their balances after adjusting entries are made, used for preparing financial statements.

Revenue Accounts

Accounts used in accounting to record the company's income from its operations or activities.