ARKANSAS CORPORATION

...... is a company that produces machinery to customer order. Its job costing system, using

normal costing, has two direct cost categories, direct materials and direct labor, and one indirect

cost pool, manufacturing overhead, allocated using a budgeted rate based on direct labor costs.

Budgeted and actual information for 2016 are as follows:

Budget

Direct Labor

Manufacturing overhead

At the end of 2016, the ending work in process consisted of:

Ending Work In Process:

Direct Materials

Direct Labor

Overhead

Actual

$420,000 $400,000

$252,000 $186,840

$64,000

50,000

30,000

$144,000

There were no beginning work-in-process or finished-goods inventories. Ending Finished Goods

showed a balance of $156,000, which included overhead costs of $25,200.

Cost of goods sold was $1,600,000, of which $184,800 consisted of applied overhead.

L/n6. Is this method really right? Why or why not?