Problem - Cool Beat Sound (CBS) Ltd, which uses a job costing system, had two jobs in process at the start of the year: job number 64 ($84 000) and job number 65 ($53 500). The following information is available:
The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $840 000 and 16 000 hours, respectively.
The company works on four jobs during the first quarter (1 January to 31 March).
Direct materials used, direct labour incurred, and machine hours consumed were as follows:
|
Job numbers
|
Direct material
|
Direct labour
|
Machine hours
|
|
64
|
$21 000
|
$35 000
|
1200
|
|
65
|
-
|
22 000
|
700
|
|
66
|
44 000
|
65 000
|
2000
|
|
67
|
15 000
|
8 800
|
500
|
Manufacturing overhead during the first quarter included depreciation ($34 000), indirect labour ($60 000), indirect materials used ($50 000) and other factory costs ($139 500).
CBS Ltd completed job number 64 and 65. Job number 65 was sold on credit, producing a profit of $34 700 for the firm.
Required:
Determine the company's overhead rate. Calculate the costs of each job as of 31 March. Determine the ending balance of the Finish goods inventory account and Work in process account as of 31 March.
Prepare the journal entries for the first quarter recording the following: (a) Issue of direct materials to production and the direct labour incurred. (b) Manufacturing overhead incurred during the quarter. (c) Application of manufacturing overhead to production. (d) Completion of job numbers 64 and 65. (e) Sale of job number 65.
When do under- or over allocated overhead costs occur? Briefly describe three alternative ways to dispose under- or over allocated overhead costs. Calculate the amount of under- or over allocated overhead of the company for the first quarter. Show the journal entry to write off this amount to Cost of goods sold.