Athena Corporation Uses a Job-Cost System and Applies Manufacturing Overhead

question 74

Essay

Athena Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20x1. Actual costs incurred follow. $$\begin{array} { l r } \text { Direct material used } & \$ 250,000 \\\text { Direct labor } & 300,000 \\\text { Manufacturing overhead } & 816,000\end{array}$$
The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.
Required:
A. Determine the company's predetermined overhead application rate.
B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
C. Compute the company's adjusted cost of goods sold.
D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

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Definitions:

Supplier Power

The ability of providers of goods or services to drive up prices and dictate terms because of their importance or scarcity.

Critical Inputs

Essential resources or factors required in the production process or for the delivery of a service that significantly impact the quality and output of the final product.

Homogenous Inputs

Inputs or resources used in production that are uniform in nature and interchangeable, contributing to consistent product quality.

High Barriers

Refers to obstacles that prevent new competitors from easily entering an industry or area of business.