Q Craver Test Systems manufactures automated testing equipment.

The company uses a job-order costing system and applies overhead on the basis of machine-hours. At the beginning of the year, estimated manufacturing overhead was $1,960,000 and the estimated machine-hours was 98,000. Data regarding several jobs at Craver are presented below. Job Number XJ-107................... ST-211................... XD-108.................. SL-205................... RX-115.................. Beginning Balance $118,600 $121,450 $21,800 $34,350 $0 Direct Materials $4,000 $2,500 $86,400 $71,800 $18,990 Direct Labor $8,400 $12,160 $36,650 $32,175 $21,845 Machine Hours 150 300 3,100 2,700 1,400

By the end of the first month (January), all jobs but RX-115 were completed, and all completed jobs had been delivered to customers except for SL-205. Required: What was the balance in Finished Goods inventory at the end of January? Ans: The Finished Goods inventory consists only of Job SL-205. The balance in the account is computed as follows: Beginning balance, Job SL-205................. $ 34,350 November charges to Job SL-205: Direct materials...................................... 71,800 Direct labor............................................. 32,175 Manufacturing overhead applied*.......... 54,000 $192,32 Ending balance, Job SL-205...................... 5 * Predetermined overhead rate = $1,960,000 98,000 MHs = $20 per MH Overhead applied = 2,700 MHs $20 per MH = $54,000

2.

Collins Company uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. The following information applies to the company for the current year: Direct labor-hours: Estimated for the year................. Actual hours worked................... Direct labor cost: Estimated for the year................. Actual cost incurred.................... Manufacturing overhead: Estimated for the year................. Actual cost incurred.................... 24,000 19,500 $300,00 0 $210,00 0 $240,00 0 $185,00 0

The manufacturing overhead cost for the current year will be: A) $17,000 overapplied B) $17,000 underapplied C) $55,000 overapplied D) $55,000 underapplied. Ans: B Solution: Predetermined overhead rate = $240,000 300,000 direct labor cost = 80% of direct labor cost Actual manufacturing overhead....................................... Applied manufacturing overhead (80% of $210,000)..... Manufacturing overhead underapplied............................ $185,000 168,000 $ 17,000

3. Brabec Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 19,700 hours. At the end of the year, actual direct labor-hours for the year were 17,700 hours, the actual manufacturing overhead for the year was $392,940, and manufacturing overhead for the year was underapplied by $35,400. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been: A) $357,540 B) $397,940 C) $431,775 D) $387,940 Ans: B Solution: Actual mfg. overhead Applied mfg. overhead = Underapplied mfg. overhead $392,940 Applied manufacturing overhead = $35,400 Applied manufacturing overhead = $357,540 Applied manufacturing overhead $357,540 $20.20 = = = ( Actual direct labor-hours 17,700 ( ( Estimated manufacturing overhead ) Estimated direct labor-hours Estimated manufacturing overhead ) 19,700 )

Estimated manufacturing overhead 19,700

Estimated manufacturing overhead = $397,940 (rounded)

4. Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The following estimates were used in preparing the predetermined overhead rate for the most recent year: Machine-hours............................... Manufacturing overhead cost........ 95,000 $1,710,00 0

During the most recent year, a severe recession in the companys industry caused a buildup of inventory in the companys warehouses. The companys cost records revealed the following actual cost and operating data for the year: Machine-hours.............................................................................. Manufacturing overhead cost....................................................... Amount of applied overhead in inventories at year-end: Work in process........................................................................ Finished goods.......................................................................... Amount of applied overhead in cost of goods sold................... 75,000 $1,687,50 0 $337,500 $253,125 $759,375

Required: a. Compute the company's predetermined overhead rate for the year and the amount of underapplied or overapplied overhead for the year. b. Determine the difference between net operating income for the year if the underapplied or overapplied overhead is allocated to the appropriate accounts rather than closed directly to Cost of Goods Sold.

Ans: The companys predetermined overhead rate for the year is: $1,710,000/95,000 MHs = $18 per MH The amount of underapplied/overapplied overhead is: Actual overhead......................................... Applied overhead ($18 75,000).............. Underapplied overhead.............................. Allocation of underapplied overhead: Overhead applied in work in process........ Overhead applied in finished goods.......... Overhead applied in cost of goods sold..... Total overhead applied.............................. $ 337,500 253,125 759,375 $1,350,00 0 25.00% 18.75% 56.25% 100.00 % $ 84,37 5 63,281 189,84 4 $337,50 0 $1,687,50 0 1,350,000 $ 337,500

The entire amount of underapplied overhead $337,500 is added to Cost of Goods Sold where no allocation occurs. Allocation results in only $189,844 being added to Cost of Goods Sold. Net operating income would be higher under allocation by $337,500 $189,844 = $147,656.

5. Last night, the sprinkler system at Three Broomsticks was accidentally set off. The ensuing deluge destroyed most of the cost records in Three Broomsticks for the month just completed (May). The plant manager has come to you in a panic he has to complete his report for head office by the end of today. He wants you to give him the numbers he needs for his report. He can provide you with some fragments of information he has been able to salvage:

Other information: 1. Total direct materials requisitions for the month were $180,000. 2. A total of 10,000 direct labour-hours were worked during the month at an average wage of $15/hour. 3. Overhead is applied to production at $10/direct labour-hour. 4. On May 31, there was 1 job, #XL235, left in Work in Process. It included $4,000 of direct materials and had received 20 direct labour-hours to date (it was started on May 30). 5. Actual manufacturing overhead expenses for May were $95,000. Required Compute the following: a. Material purchases during May b. Cost of work in process inventory at the end of May c. Amount paid to labour force in May d. Cost of goods sold in May e. Over/under applied overhead in May f. Cost of goods transferred from Work in Process to Finished Goods in May g. Cost of finished goods inventory at the beginning of May

Answer
a. Material purchases during May: $180,000 + $55,000 $25,000 = $210,000 b. Work in process ending inventory: Direct material $4,000 Direct labour (20 $15) 300 Manufacturing overhead (20 $10) 200 Ending balance $4,500 c. Paid to labour force in May: (10,000 $15) + $10,000 $20,000 = $140,000 d. Cost of goods sold in May: $400,000 (withdrawals from Finished Goods) e. Over/underapplied overhead in May: (10,000 $10) $95,000 = $5,000 overapplied f. Cost of goods transferred to Finished Goods in May: $15,000 + $180,000 + $150,000 + $100,000 $4,500 = $440,500 g. Cost of finished goods beginning inventory: $400,000 $440,500 + $50,000 = $9,500