The Following Figures Were Taken from the Records of Welling

Essay

The following figures were taken from the records of Welling Co. for the current year. At the end of the year, two jobs were still in process. Details about the two jobs include: $$\begin{array} { | l | r | r | } \hline & \text { Job A } & \text { Job B } \\\hline \text { Direct labor } & \$ 10,000 & \$ 28,000 \\\hline \text { Direct materials } & \$ 32,000 & \$ 22,000 \\\hline \text { Machine hours } & 2,000 & 3,500 \\\hline \text { Direct labor hours } & 1,000 & 2,000 \\\hline\end{array}$$ Welling Co. applies overhead at a budgeted rate, calculated at the beginning of the year. The budgeted rate is the ratio of budgeted overhead to budgeted direct labor costs. Budgeted figures for the current year were: $$\begin{array} { | l | r | } \hline \text { Budgeted direct labor costs } & \$ 250,000 \\\hline \text { Budgeted overhead } & \$ 187,500 \\\hline\end{array}$$ Actual figures were $$\begin{array} { | l | r | } \hline \text { Direct labor } & \$ 350,000 \\\hline \text { Overhead } & \$ 192,500 \\\hline \text { Finished goods inventory } & \$ 75,000 \\\hline \text { Cost of goods sold } & \$ 550,000 \\\hline\end{array}$$ There were no opening inventories. It is the practice of the company to prorate any over/under-absorption of overhead to finished goods inventory, work in process, and cost of goods sold based on the total dollars in these categories.
Required:
a. Compute the cost of work in process before over/under-applied overheads are prorated.
b. Prepare a schedule of finished goods inventory, work in process, and cost of goods sold after over/under-applied overheads are prorated.
c. What is the difference in operating income if the over/under-applied overhead is charged to cost of goods sold instead of being prorated to finished goods inventory, work in process, and cost of goods sold?