"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 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow.
Direct material used $5,550,000
Direct labor 4,350,000
Indirect material used 63,000
Indirect labor 2,860,000
Factory depreciation 1,740,000
Factory insurance 59,000
Factory utilities 830,000
Selling and administrative expenses 2,160,000
Total $17,612,000
Job no. 2077 was completed in January 2002; 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 $154,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold category.
Using the above information, do the following:1. Calculate the company’s predetermined overhead application rate.2. Calculate the additions to the work-in-process inventory account for the direct material used, direct labor, and manufacturing overhead.3. Calculate the finished-goods inventory for the 12/31/02 balance sheet.4. 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.