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  • 1.  OVERHEAD PART 1 QUESTION HELP

    Posted 05-27-2022 01:32 PM
    why was the finished goods subtracted from COGS. in some other questions it wasnt solved like this,

    A corporation's results for the past year are shown below.
    Cost of goods available for sale
    $136,000
    Ending balance, raw material inventory
    6,000
    Ending balance, work-in-process inventory
    14,000
    Ending balance, finished goods inventory
    13,000
    Manufacturing overhead applied
    50,000
    Actual manufacturing overhead
    55,000
    If the corporation prorates any overapplied or underapplied overhead at the end of the year, cost of goods sold after proration would total
    Answer (B) is correct.
    Cost of goods sold before proration is calculated by subtracting the ending balance of finished goods inventory from cost of goods available for sale to achieve $123,000 ($136,000 – $13,000). Manufacturing overhead was underapplied by $5,000 ($55,000 actual – $50,000 applied). That excess $5,000 is prorated among the ending balance of work-in-process, the ending balance of finished goods, and cost of goods sold. The amount prorated to cost of goods sold is $4,100 {$5,000 × [$123,000 cost of goods sold ÷ ($123,000 cost of goods sold + $14,000 ending balance work-in-process + 13,000 ending balance finished goods)]}. The cost of goods sold after proration would total $127,100 ($123,000 + $4,100).


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    Tayba Al-Mehdar
    Controller
    Khobar
    Saudi Arabia
    ------------------------------


  • 2.  RE: OVERHEAD PART 1 QUESTION HELP

    Posted 05-28-2022 03:12 PM

    Hi ,

    Maybe you have mistaken in the concept.

    COGAS (Cost of Goods available for Sale) is not same as COGS (Cost of Goods Sold). 

    COGAS is Beginning Inventory + Purchases + Direct labour + Overheads = Cost of Goods available for sale during the year.

    From COGAS we deduct the ending Inventory to arrive at COGS ; COGAS - Closing Inventory = COGS.

    In the question , it is given ; COGAS as $ 136,000/- not COGS . Hence as per the above concept to arrive at COGS we need to deduct / subtract Closing Inventory from COGAS ; $ 136,000 - $ 13,000 = $ 123,000/- as COGS.

    As mentioned in the question the manufacturing overhead is underapplied by $ 5,000/- and it is to be allocated on prorata basis.

    So, 123,000 + (5,000 / 156,000 x 123,000) = 123,000 + 3,942 = $ 126,942 

    Hope it is clear.



    ------------------------------
    YASIR ALI
    Accountant
    KOLKATA
    India
    ------------------------------



  • 3.  RE: OVERHEAD PART 1 QUESTION HELP

    Posted 05-29-2022 05:48 AM
    Thank you for your explanation . it is clear to me now.

    ------------------------------
    Tayba Al-Mehdar
    Controller
    Khobar
    Saudi Arabia
    ------------------------------

    Original Message


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