Dillon Corporation applies manufacturing overhead to jobs using a predetermined overhead rate of 75% of direct labor cost. Any under or overapplied manufacturing overhead cost is closed out to Cost of Goods Sold at the end of the month. During May, the following transactions were recorded by the company:
Raw Materials (all direct materials) :
Purchased during the month : $38,000
Used In Production : $35,000
Labor:
Direct Labor Hours Worked During Month : 3,150
Direct Labor Cost Incurred : $30,000
Inventories :
Raw Materials (all direct) , May 31 : $8,000
Work In Process : $9,000
Work In Process , May 31 : $12,000 (contains 4,000 direct labor cost)
Question : The balance in the Finished Goods inventory account at the beginning of the year was:
A. $15,900
B. $15,400
C. $21,200
D. $36,600
Answer was shown as : Ending finished goods inventory = Beginning finished goods inventory + Debits - Credits
$36,600 = Beginning finished goods inventory + $360,000 - $338,800
Beginning finished goods inventory = $36,600 - $360,000 + $338,800 = $15,400
I do not get why this is, and where the debits and credits come from and where the beginning balance comes from. Thanks.
