Problem - Maverick Wings, Inc. manufactures airplanes for use in stunt shows. Maverick's factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible. Since each plane has different features (such as its shape, weight, and color), Maverick uses a job order costing system to accumulate product costs.
At the end of 2013, Maverick's accountants developed the following expectations for 2014 based on the marketing department's sales forecast:
|
Budgeted overhead cost
|
$1,146,000
|
|
Estimated machine hours
|
58,000
|
|
Estimated direct labor hours
|
10,000
|
|
Estimated direct materials cost
|
$1,520,000
|
Maverick's inventory count, completed on December 31, 2013, revealed the following ending inventory balances:
|
Raw Materials Inventory
|
$250,000
|
|
Work in Process Inventory
|
$627,000
|
|
Finished Goods Inventory
|
$2,220,000
|
The company's 2014 payroll data revealed the following actual payroll costs for the year:
|
Job Title
|
Number
Employed
|
Wage Rate
per Hour
|
Annual
Salary per
Employee
|
Total Hours
Worked per
Employee
|
|
President and CEO
|
1
|
|
$227,000
|
|
|
Vice president and CFO
|
1
|
|
$178,000
|
|
|
Factory manager
|
1
|
|
$40,200
|
|
|
Assistant factory manager
|
1
|
|
$31,900
|
|
|
Machine operator
|
5
|
$14.50
|
|
2,250
|
|
Security guard, factory
|
2
|
|
$20,500
|
|
|
Materials handler
|
2
|
$7.50
|
|
2,000
|
|
Corporate secretary
|
1
|
|
$36,600
|
|
|
Janitor, factory
|
2
|
$6
|
|
2,150
|
The following information was taken from Maverick's Schedule of Plant Assets. All assets are depreciated using the straight-line method.
|
Plant Asset
|
Purchase Price
|
Salvage Value
|
Useful Life
|
|
Factory building
|
$4,000,000
|
$150,000
|
20 Years
|
|
Administrative office
|
$650,000
|
$125,000
|
30 Years
|
|
Factory equipment
|
$2,000,000
|
$20,000
|
12 Years
|
Other miscellaneous costs for 2014 all paid in cash included:
|
Cost
|
Amount
|
|
Factory insurance
|
$12,100
|
|
Administrative office utilities
|
$5,500
|
|
Factory utilities
|
$30,300
|
|
Office supplies
|
$4,400
|
Additional information about Maverick's operations in 2014 includes the following:
- Raw materials purchases for the year amounted to $1,949,000. All purchases were on account.
- The company used $1,860,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials.
- Maverick applied overhead to Work in Process Inventory based on direct materials cost.
- Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory.
- Maverick uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000. (Note: This transaction requires two journal entries.)
- All sales were on account.
What was Maverick's predetermined overhead rate in 2014?
Prepare the journal entries to record Maverick's costs for 2014.
If Maverick chooses instead to prorate under- or overapplied overhead, what would the adjusted balances be in Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold for 2014?
Job 3827 was started and completed in 2014. The job required 1,000 machine hours, 700 direct labor hours, and $75,000 in direct materials to complete. What was the total cost of this job? Using Maverick's 80% markup, what sales price would be charged for this airplane?
If Maverick had chosen to use machine hours as its overhead application base, what would the rate have been in 2014?