Under Pick Co.'s job order costing system manufacturing overhead is applied to work in process using a predetermined annual overhead rate. During January Year 1, Pick's transactions included the following:
  Direct materials issued to production
  $ 90,000
  Indirect materials issued to production
  8,000
  Manufacturing overhead incurred
  125,000
  Manufacturing overhead applied
  113,000
  Direct labor costs
  107,000
  Pick had neither beginning nor ending work-in-process inventory. What was the cost of jobs completed in January Year 1?
  a.$330,000
  b.$310,000
  c.$322,000
  d.$302,000
  Answer:B
  Choice "B" is correct. Cost of jobs completed (or cost of goods manufactured) equals direct materials used + direct labor + overhead applied + beginning WIP - ending WIP. In this case, the calculation is:
  COGM = $90,000 + $107,000 + $113,000 + $0 - $0 = $310,000
  Indirect materials ($8,000) are included in the actual overhead incurred. COGM uses applied overhead, not actual overhead. The underapplied overhead of $12,000 ($125,000 - $113,000) would normally be closed out to cost of goods sold unless considered material and then it would be allocated pro rata to the ending balances of WIP, finished goods inventory, and cost of goods sold.