Question

During 2012, Sand, Inc. expected Job No. 51 to cost $300,000 of overhead, $500,000 of materials, and $200,000 in labor. Sand applied overhead based on direct labor cost. Actual production required an overhead cost of $280,000, $550,000 in materials used, and $220,000 in labor. All of the goods were completed. What amount was transferred to Finished Goods

Answer 1

Answer:

Finished goods   1,100,000  debit

        WIP inventory           1,100,000 credit

--transferred-out units for Job N51--

Explanation:

The company applied overhead based on labor cost:

$\frac{Cost\: Of \:Manufacturing \:Overhead}{Cost \:Driver}= Overhead \:Rate$

300,000 / 200,000 = 1.5

We now multiply this rate by the actual labor hours to know how much we apply.

220,000 x 1.5 = 330,000

now, the total cost will be:

Materials       550,000

Labor             220,000

Applied MO  330,000

Cost             1,100,000

This is the amount we transfer into finished goods.

At the end of the period, when the actual overhead values are know we adjust the difference against cost of goods sold.