Problem - ErgoFurn, Inc. manufactures ergonomically designed computer furniture. ErgoFurn uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs:
|
Job No.
|
Item
|
Units
|
Accumulated Cost
|
|
CC723
|
Computer caddy
|
20,000
|
$900,000
|
|
CH291
|
Chair
|
15,000
|
431,000
|
|
PS812
|
Printer stand
|
25,000
|
250,000
|
|
|
|
$1,581,000
|
On November 30, ErgoFurn's Raw Materials Inventory account totaled $668,000, and its Finished Goods Inventory totaled $3,456,400. ErgoFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totaled $4,500,000, and the company planned to use 900,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 830,000 machine hours, total manufacturing overhead amounted to $4,274,500, and Cost of Goods Sold was $8,750,250.
ErgoFurn purchased $638,000 in raw materials in December and incurred the following costs for jobs in process that month:
|
Job No.
|
Materials Issued
|
Machine Hours
|
Direct Labor Hours
|
Direct Labor Cost
|
|
|
|
CC723
|
$155,000
|
12,000
|
11,600
|
$122,400
|
|
|
CH291
|
$13,800
|
4,400
|
3,600
|
$43,200
|
|
|
PS812
|
$211,000
|
19,500
|
14,300
|
$200,500
|
|
|
DS444
|
$252,000
|
14,000
|
12,500
|
$138,000
|
|
The following jobs were completed in December and transferred to the Finished Goods Inventory:
|
Job No.
|
Item
|
Units
|
|
CC723
|
Computer caddy
|
20,000
|
|
CH291
|
Chair
|
15,000
|
|
DS444
|
Desk
|
5,000
|
ErgoFurn incurred $395,000 in manufacturing overhead in December.
Assume that actual overhead for the year was $4,669,500 and that applied overhead was $4,399,500. Why was overhead under- or overapplied for the year?
Which method of under- or overapplied overhead disposition is more appropriate for ErgoFurn: (1) assigning it all to Cost of Goods Sold or; (2) Prorating it to Work in Process, Finished Goods and Cost of Goods Sold. Why?