Management Accouting
Determining the overhead application rate of Finlon Upholstery Inc. The rate a company applies during an estimation of its total overheads is described as Overhead application rate (Kaplan, 2015). The materials used is the best way in our case to determine the absorption rate, giving the following results
Direct material used
5,600,000
Total overheads
17664000
Overhed Abs. rate
3.154286
This table explains that the absorption rate is $ 3.154286, and that the rate has been applied across various overheads to estimate the total overhead.
Additions to work In Progress inventory account
Work in Progress
|
Work in Progress at the beginning of the year |
156,800 |
|
Direct materials used during the year |
5,600,000 |
|
Indirect materials used |
65000 |
|
Unsold job during the year |
156,000 |
|
Additions to the work in progress |
5,665,800 |
From the above table, it is clear that the value of the additions made to the work in progress was 5,665,800
Calculation of Finished Goods Inventory
|
Direct Materials |
5600000 |
|
Direct Labour |
4350000 |
|
Indirect materials |
65000 |
|
Indirect Labour |
2860000 |
|
Finished goods inventory |
12875000 |
The above figure is gotten by adding direct materials, and direct labor
Determination of over/ Under Applied Overhead rate
|
Budgeted Labour overheads |
4,200,000 |
|
Actual Labour Overheads |
4,350,000 |
|
Over/Under applied |
-150,000 |
From the table above its clear that the overhead rate is 150,000 on the negative side
The selling and administration expenses should not be included in the cost of goods sold category. This is because cost of goods is the cost at which the Company acquired its materials from suppliers and as such does not include operating and general expenses (Garrison, 2014).
References
Garrison, R. H. (2014). Managerial accounting. New York: McGraw-Hill/Irwin.
Kaplan, R. S. (2015). Advanced management accounting. PHI Learning.
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