The following cost data relate to the manufacturing activities of Newberry Company during the just completed year:

The company uses a predetermined overhead rate to apply manufacturing overhead cost to production. The predetermined overhead rate for the year was $15 per machine-hour. A total of 23,000 machine-hours were recorded for the year.

Required:

b. Compute the amount of cost of goods manufactured for the year.

Question

The following cost data relate to the manufacturing activities of Newberry Company during the just completed year:

The company uses a predetermined overhead rate to apply manufacturing overhead cost to production. The predetermined overhead rate for the year was $15 per machine-hour. A total of 23,000 machine-hours were recorded for the year.

Required:

b. Compute the amount of cost of goods manufactured for the year.

BlackTom AI · Accepted Answer

Applied manufacturing overhead = predetermined rate × machine-hours = $15 × 23,000 = $345,000.

1. Relevant knowledge points and concepts
- Cost of goods manufactured (COGM) = Total manufacturing costs added during the period + Beginning work-in-process (WIP) − Ending WIP.
- Total manufacturing costs = Direct materials used + Direct labor + Manufacturing overhead applied (use the predetermined rate to apply overhead).
- Direct materials used = Beginning raw materials + Purchases of raw materials − Ending raw materials. If indirect materials are included in purchases/usage, subtract them to obtain direct materials.

2. Step‑by‑step reasoning
- Compute raw materials used, then separate direct and indirect materials.
- Compute applied manufacturing overhead using the predetermined rate and actual machine-hours.
- Sum direct materials used, direct labor, and applied overhead to get total manufacturing costs.
- Adjust for beginning and ending WIP to get COGM.

3. Intermediate calculations
- Raw materials used = $10,000 (beginning) + $250,000 (purchases) − $15,000 (ending) = $245,000.
- Indirect materials (given) = $15,000, so Direct materials used = $245,000 − $15,000 = $230,000.
- Applied manufacturing overhead = $15 × 23,000 = $345,000.
- Total manufacturing costs = Direct materials $230,000 + Direct labor $135,000 + Applied MOH $345,000 = $710,000.
- COGM = Total manufacturing costs $710,000 + Beginning WIP $20,000 − Ending WIP $35,000 = $695,000.

4. Why the correct answer is correct
The company uses applied (predetermined) overhead, so we must use $345,000 (not the actual $353,000). Also indirect materials are part of manufacturing overhead, so direct materials exclude the $15,000 of indirect materials. After computing direct materials used and applied overhead, adjusting total manufacturing costs for WIP produces $695,000.

5. Why the other options are incorrect (brief)
- $710,000: equals total manufacturing costs before subtracting ending WIP (i.e., failing to adjust WIP).
- $260,000 and $730,000: result from miscalculations such as ignoring indirect materials, using incorrect overhead (actual vs. applied), or incorrect inventory adjustments; they do not follow the proper COGM formula.

6. Conclusion
Following the correct steps yields COGM = $695,000, which matches the provided correct answer.

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