Question

stockman incorporated has provided the following data for the month of november. there were no beginning inventories; consequently, the direct materials, direct labor, and manufacturing overhead applied listed below are all for the current month.

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$$\begin{tabular}{lrrrr} & work in process & finished goods & cost of goods sold & total \\\\ \\hline direct materials & \\$4,070 & \\$15,680 & \\$42,080 & \\$61,830 \\\\ direct labor & 7,760 & 27,440 & 73,640 & 108,840 \\\\ manufacturing overhead applied & 5,130 & 14,250 & 37,620 & 57,000 \\\\ \\hline total & \\$16,960 & \\$57,370 & \\$153,340 & \\$227,670 \\\\ \\hline \\end{tabular}$$

manufacturing overhead for the month was overapplied by \\$1,000.

the company allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts.

the work in process inventory at the end of november after allocation of any underapplied or overapplied manufacturing overhead for the month is closest to:

multiple choice

• \\$16,870
• \\$16,886
• \\$17,050
• \\$17,034

Explanation:

Identify the allocation base and total overhead applied

We need to allocate the overapplied manufacturing overhead of \$1,000. The problem states that the allocation is based on the overhead applied during the month in each account: Work in Process (WIP), Finished Goods (FG), and Cost of Goods Sold (COGS).

From the table, the manufacturing overhead applied to each account is:

• Work in Process: \$5,130
• Finished Goods: \$14,250
• Cost of Goods Sold: \$37,620
• Total Overhead Applied: \$57,000

Calculate the allocation proportion for Work in Process

Using the Overhead Application values, we find the proportion of the total applied overhead that belongs to the Work in Process account:

$$ \text{Proportion}_{\text{WIP}} = \frac{\$5,130}{\$57,000} = 0.09 $$

Allocate the overapplied overhead to Work in Process

Since the manufacturing overhead was overapplied by \$1,000, the actual overhead incurred was less than the applied overhead. To correct this, we must reduce the account balances. We calculate the reduction for the Work in Process account:

$$ \text{Allocation to WIP} = 0.09 \times \$1,000 = \$90 $$

Calculate the adjusted Work in Process ending balance

We subtract the allocated overapplied overhead from the initial ending balance of the Work in Process account:

• Initial WIP Balance: \$16,960
• Overhead Reduction: \$90

$$ \text{Adjusted WIP Balance} = \$16,960 - \$90 = \$16,870 $$

Answer:

• (A) $16,870 (Correct answer)
• (B) $16,886
• (C) $17,050
• (D) $17,034