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BUSI 1005 Tutorial 2 Question 1 - The following data were taken from the records of Cougar Enterprises, a Canadian manufacturer that uses a job-order costing system: Work in Process, November 30 Job Number 170 175 180 Direct materials $1,800 $2,40 0 $1, Direct labour 1,200 2,400 600 Applied overhead 600 1,350 450 Total $3,600 $6,150 $2, During December, jobs numbered 170 through 190 were worked on, and the following costs were incurred: Job Number 170 175 180 185 190 Total Total Direct materials $600 $ 900 $1,200 $1,350 $1,500 $5, Direct labour $750 $1,500 $3,000 $2,250 $6,000 $13, Direct labour hours 50 100 200 150 400 900 Additional information:
- Total overhead costs are applied to jobs on the basis of direct labour hours worked. At the beginning of the year, the company estimated that total overhead costs for the year would be $150,000, and the total labour hours worked would be 12,500.
- Total actual overhead for the period January 1 - November 30 was $160,010. Direct labour hours worked for the previous 11 months (January through November) were 11,250.
- Expenses for December were as follows (not yet recorded in the books of account): Direct materials purchased $7, Production supervisor salary 3, Amortization (plant and equipment) 2, Factory supplies 1, Sales staff salaries 9, Utilities (factory) 1, Administrative expenses 9, Total $35,
- The company writes off all over- or underapplied overhead to Cost of Goods Sold at the end of the year.
- Jobs numbered 170, 180, 185, and 190 were completed during December. Only Job 190 remained in finished goods on December 31.
- The company charges its customers 250 percent of total manufacturing cost.
- Cost of goods sold to December 1 was $358,750.
- There were no jobs in finished goods on November 30.
Required:
- Calculate the predetermined overhead rate used to apply overhead to jobs.
- Prepare job-order cost sheets for each job in process during December.
- What is the cost of work-in-process inventory at December 31?
- Prepare a statement of cost of goods manufactured for December.
- Calculate the gross margin for December.
- Calculate the over- or underapplied overhead for the year. What effect would this amount have on net income? Question 2 - The following figures were taken from the records of Wellington Co. for the year 1998. At the end of the year, two jobs were still in process. Details about the the jobs are given below: Job A Job B Direct labor $10,000 $28, Direct materials $32,000 $22, Machine hours 2,000 3, Direct labor hours l,000 2, Wellington Co. applies overheads at a budgeted rate, calculated at the beginning of the year. The budgeted rate is the ratio of budgeted overhead to budgeted direct labor costs. Budgeted figures for 1998 were Budgeted direct labor costs $250, Budgeted overhead $187, Actual figures for 1998 were Direct labor $350, Overhead $192, Finished goods inventory $ 75, Cost of goods sold $550, Opening inventories were as follows: Finished goods $35, Work-in-process inventories 15, Raw materials inventory 10, It is the practice of the company prorate any over/underabsorption of overheads to finished goods inventory, work in process, and cost of goods sold. Required: a. Compute the cost of work in process before over/underapplied overhead are prorated. b. Prepare a schedule of finished goods inventory, work in process, and cost of goods sold after over/underapplied overheads are prorated. c. What is the difference in operating income if the over/underapplied overhead is charged to cost of goods sold instead being prorated to finished goods inventory, work in process.
5. Cost of goods sold
- Finished goods, beginning $ - Cost of goods manufactured 32, - $20, Less finished goods inventory, ending (Job 190) (12,300) - Job 170 $5, Check: jobs sold = - Job 180 9, - Job 185 5, - $20,
- Revenue = $20,100 x 2.5 = $50,
- Gross margin = $50,250 – 20,100 = $30,
- Actual overhead to Nov 30 $160,
- Production supervisor salary 3, Actual overhead incurred in December
- Amortization 2,
- Factory supplies 1,
- Utilities 1, - 169,
- Overhead applied: (11, - Hours to Nov - + - ) = 12,150 x $12.00 145, Dec Hours
- Under-applied overhead $23,
Question 2 a. POR = $187,500 ÷ 250,000 = 75% Job A Job B Direct labour $10,000 $28, Direct materials 32,000 22, Overhead applied (DL$ x .75) 7,500 21, Total cost of jobs $49,500 $71, b. Overhead applied: $350,000 x .75 $262, Actual overhead 192, Overapplied overhead $70, Unadjusted Amount % Overapplied Overhead Adjusted Amount WIP $120,500 17.3% $(12,110) $108, FG 75,000 10.8% (7,560) 67, COGS * 500,000 71.9% (50,330) 499, $695,500 (70,000) $675,
- COGS Adjusted for opening inventories = $550,000 – 35,000 – 15,000 = $500, c. Operating income will increase $19,670 (12,110 + 7,560) the overapplied overhead charged to WIP and FG inventories. If all of the overapplied overhead is charged to COGS then operating income will go up by the amount prorated to WIP and FG.
