Problem:
(Comprehensive) Pip Squeaks Inc. is a manufacturer of furnishings for infants and children. The company uses a job order cost system. Pip Squeaks' Work in Process Inventory on April 30, 2010, consisted of the following jobs:
|
Job No.
|
Items
|
Units
|
Accumulated Cost
|
|
CBS102
|
Cribs
|
20,000
|
$ 900,000
|
|
PLP086
|
Playpens
|
15,000
|
420,000
|
|
DRS114
|
Dressers
|
25,000
|
1,570,000
|
The company's Finished Goods Inventory, carried on a FIFO (first-in, first-out) basis, consists of five items:
|
Item
|
Quantity and Unit Cost
|
Total Cost
|
|
Cribs
|
7,500 units _ $64
|
$ 480,000
|
|
Strollers
|
13,000 units _ $23
|
299,000
|
|
Carriages
|
11,200 units _ $102
|
1,142,400
|
|
Dressers
|
21,000 units _ $55
|
1,155,000
|
|
Playpens
|
19,400 units _ $35
|
679,000
|
|
Total
|
|
$3,755,400
|
Pip Squeaks applies factory overhead on the basis of direct labor hours. The company's factory overhead budget for the fiscal year ending May 31, 2010, totaled $4,500,000, and the company planned to work 600,000 direct labor hours during this year. Through the first 11 months of the year, a total of 555,000 direct labor hours were worked, and total factory overhead amounted to $4,273,500.
At the end of April, the balance in Pip Squeaks' Raw Material Inventory account, which includes both raw material and purchased parts, was $668,000.Additions to and requisitions from the material inventory during May included the following:
|
Raw Material
|
Parts Purchased
|
|
Additions
|
$242,000
|
$396,000
|
|
Requisitions:
|
|
|
|
Job #CBS102
|
51,000
|
104,000
|
|
Job #PLP086
|
3,000
|
10,800
|
|
Job #DRS114
|
124,000
|
87,000
|
|
Job #STR077 (10,000 strollers)
|
62,000
|
81,000
|
|
Job #CRG098 (5,000 carriages)
|
65,000
|
187,000
|
During May, Pip Squeaks' factory payroll consisted of the following:
|
Job No.
|
Hours
|
Cost
|
|
CBS102
|
12,000
|
$122,400
|
|
PLP086
|
4,400
|
43,200
|
|
DRS114
|
19,500
|
200,500
|
|
STR077
|
3,500
|
30,000
|
|
CRG098
|
14,000
|
138,000
|
|
Indirect
|
3,000
|
29,400
|
|
Supervision
|
|
57,600
|
|
Total
|
|
$621,100
|
The jobs that were completed in May and the unit sales for May are as follows:
|
Job No.
|
Items
|
Quantity Completed
|
|
CBS102
|
Cribs
|
20,000
|
|
PLP086
|
Playpens
|
15,000
|
|
STR077
|
Strollers
|
10,000
|
|
CRG098
|
Carriages
|
5,000
|
|
Items
|
Quantity Shipped
|
|
Cribs
|
17,500
|
|
Playpens
|
21,000
|
|
Strollers
|
14,000
|
|
Dressers
|
18,000
|
|
Carriages
|
6,000
|
a. Describe when it is appropriate for a company to use a job order costing system.
b. Calculate the dollar balance in Pip Squeaks' Work in Process Inventory account as of May 31, 2010.
c. Calculate the dollar amount related to the playpens in Pip Squeaks' Finished Goods Inventory as of May 31, 2010.
d. Explain the treatment of underapplied or overapplied overhead when using a job order costing system.