Calculating Finlon's Inventory

The assignment requires calculating Finlon Upholstery Inc.'s predetermined overhead application rate, adding to work-in-process inventory accounts for direct material used, direct labor, and manufacturing overhead, and determining finished goods inventory and over-applied or under-applied overhead at year-end. Additionally, it involves discussing the appropriateness of including selling and administrative expenses in the cost of goods sold category.

Calculating Inventory
Finlon Upholstery Inc. uses a job-order costing system to accumulate manufacturing costs. The
company's work-in-process on December 31, 2001, 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 2002, 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.
Using the above information, do the following:
 Calculate the company’s predetermined overhead application rate.
 Calculate the additions to the work-in-process inventory account for the direct material used,
direct labor, and manufacturing overhead.
 Calculate the finished-goods inventory for the 12/31/02 balance sheet.
 Calculate the over-applied or under-applied overhead at year-end.
 Explain if it is appropriate to include selling and administrative expenses in the cost of goods sold
category.
Perform your calculations in an Excel spreadsheet and copy the calculations into a Word document.