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Culpepper Corporation had the following inventories at the beginning and end of the month of January: $$\begin{array}{lrr} & \text { January 1 } & \text { January 31 } \\ \hline \text { Finished goods } & \$ 125,000 & \$ 117,000 \\ \text { Work-in-process } & 235,000 & 251,000 \\ \text { Direct materials } & 134,000 & 124,000 \end{array}$$ The following additional manufacturing data was available for the month of January. $$\begin{array}{ll} \text {Direct materials purchased} & \text {\$ 189,000} \\ \text {Transportation in} & \text {3,000}\\\ \text {Direct labor} & \text {400,000}\\\ \text {Actual factory overheadd} & \text {175,000}\\\ \end{array}$$ Culpepper Corporation applies factory overhead at a rate of \(40 \%\) of direct labor cost, and any overapplied or underapplied factory overhead is deferred until the end of the year. Culpepper's balance in its factory overhead control account at the end of January was: 1\. \(\$ 15,000\) overapplied. 2\. \(\$ 15,000\) underapplied. 3\. \(\$ 5,000\) underapplied. 4\. \(\$ 5,000\) overapplied.

Short Answer

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The correct answer is: 2. $15,000 underapplied.
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Step 1: Calculate Applied Factory Overhead

The applied factory overhead can be calculated as 40% of direct labor. The cost of direct labor is given as \(400,000. So, Applied Factory Overhead = 0.40 * \)400,000 = $160,000.

Step 2: Get the Actual Factory Overhead

We can get the actual factory overhead cost directly from the provided data. The actual overhead incurred by Culpepper Corporation in January is $175,000.

Step 3: Determine Overapplied or Underapplied Factory Overhead

The overapplied or underapplied factory overhead is determined by subtracting the applied factory overhead from the actual factory overhead. So, Overapplied or Underapplied Factory Overhead = Actual Factory Overhead - Applied Factory Overhead = \(175,000 - \)160,000 = $15,000.

Step 4: Sign of the Overapplied or Underapplied Factory Overhead

Since the actual factory overhead is more than the applied factory overhead, the $15,000 is underapplied, and not overapplied. So, the correct answer from the given options on Culpepper Corporation's factory overhead control account balance at the end of January is: 2. $15,000 underapplied.

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Most popular questions from this chapter

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