Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s

Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20X1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.

 

Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours multiplied by the budgeted direct-labor rate.) Budgeted totals for 2002 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year are as follows:

 

 

Actual Results
Direct Materials Used	$5,600,000.00
Direct Labor	$4,350,000.00
Indirect Material Used	$65,000.00
Indirect Labor	$2,860,000.00
Factory Depreciation	$1,740,000.00
Factory Insurance	$59,000.00
Factory Utilities	$830,000.00
Selling and Administrative Expenses	$2,160,000.00
Total	$17,664,000.00

 

Job No. 2077 was completed in January 20X2 and there was no work in process at year-end. All jobs produced during 2002 were sold with the exception of Job No. 2143, which contained direct-material costs of $156,000 and direct-labor charges of $85,000. The company charges any under- or over-applied overhead to the cost of goods sold category.

 

Required:

1. Determine the company’s predetermined overhead application rate.

  

2. Determine the additions to the Work-in-Process Inventory account for direct material used, directlabor, and manufacturing overhead. 3. Compute the amount that the company would disclose as finished-goods inventory on theDecember 31, 20×2, balance sheet. 4. Prepare the journal entry needed to record the year’s completed production. 5. Compute the amount of under- or overapplied overhead at year-end, and prepare the necessaryjournal entry to record its disposition. 6. Determine the company’s 20×2 cost of goods sold. 7. Would it be appropriate to include selling and administrative expenses in either manufacturingoverhead or cost of goods sold? Briefly explain.