Finlon Upholstery Inc. Inventory Costing and Overhead Analysis

This assignment solution focuses on inventory costing and overhead application for Finlon Upholstery Inc. It begins by calculating the predetermined overhead application rate based on budgeted direct labor and manufacturing overhead. The solution then details the additions to the work-in-process inventory, including direct materials, direct labor, and manufacturing overhead. It also determines the finished goods inventory balance and calculates the over- or under-applied overhead at year-end. Furthermore, the solution addresses the appropriateness of including selling and administrative expenses in the cost of goods sold category. The calculations are performed in an Excel spreadsheet and presented in a Word document.

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.