Utease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows
| |
| Manufacturing costs (per unit based on expected activity of 35,000 units or 45,500 direct labor hours): |
| Direct materials (2.0 pounds at $12) |
$ |
24 |
|
| Direct labor (1.3 hours at $80) |
|
104 |
|
| Variable overhead (1.3 hours at $10) |
|
13 |
|
| Fixed overhead (1.3 hours at $20) |
|
26 |
|
|
|
|
|
| Standard cost per unit |
$ |
167 |
|
|
|
|
|
| Budgeted selling and administrative costs: |
|
|
|
| Variable |
$ |
3 |
per unit |
| Fixed |
$ |
1,600,000 |
|
|
| Expected sales activity: 31,000 units at $300 per unit |
| Desired ending inventories: 18% of sales |
|
Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity:
|
|
|
|
|
| Units produced |
|
34,000 |
|
| Units sold |
|
32,500 |
|
| Unit selling price |
$ |
295 |
|
| Direct labor hours worked |
|
43,700 |
|
| Direct labor costs |
$ |
3,539,700 |
|
| Direct materials purchased |
|
72,000 |
pounds |
| Direct material costs |
$ |
864,000 |
|
| Direct material used |
|
72,000 |
pounds |
| Actual fixed overhead |
$ |
1,300,000 |
|
| Actual variable overhead |
$ |
355,000 |
|
| Actual selling and administrative costs |
$ |
1,793,000 |
|
|
In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.
1. Find the total over- or underapplied (both fixed and variable) overhead. Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead?