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:

Reverse Stock Split

A business move that reduces the total number of current stock shares, making the remaining shares more valuable on a proportional basis.

New Share

A unit of equity representing ownership in a corporation that has been issued to investors for the first time, increasing the total number of outstanding shares.

Outstanding Shares

Shares of a corporation's stock that are currently owned by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

Homemade Dividends

A concept whereby investors create their own dividend policy by selling a portion of the shares they own to generate cash, rather than relying on company-issued dividends.