[Digital912]

Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate of 70% of direct labor cost. Any underapplied or overapplied overhead cost is closed to Cost of Goods Sold at the end of the month. During August, the following transactions were recorded by the company:

Raw materials (all direct materials):
... Purchased during the month... $30,000
... Used in production... … $31,000

Labor:
... Direct labor hours worked during the month... 3,000
... Direct labor cost incurred... … $27,000
... Indirect labor cost incurred... … $6,000

Manufacturing overhead costs incurred (total)... $19,000

Inventories:
... Raw materials (all direct) August 31... $8,000
... Work in process, August 1... $7,600
... Work in process, August 31*... $15,000

*contains $6,000 of direct labor cost


The Cost of Goods Manufactured for August was:
a. $69,600
b. $69,500
c. $76,900
d. $84,500

I would like to check with you guys to see if my answer is correct. I got "A. $69,600" for my answer because I calculated Raw materials Used in production Direct Labor Manufacturing Overhead = $77,000 total manufacturing cost. Then, I do $77,000 Beginning Work in-process Inventory - Ending Work in-process Inventory = $77,000 $7,600 - $1,900 = $69,600. Am I doing this wrong?

This website was also helpful to me in addition to my text book by the way: http://www.cliffsnotes.com/study_gui...eId-21219.html

[rehmanvohra]

Try this out, please:
Materials used $31,000
Direct Labor 27,000
Overheads (27,000x.70) 18,900
Total manufacturing costs76,900
WIP beginning 7,600
84,500
WIP ending 15,000
Cost of goods manufactured 69,500

Your mistake was to take $19,000 as overheads which are actual costs. Remember any ovr or under applied overheads are to be closed to cost of goods sold.