Pre-determined overhead application rate


PART1.

Fuller Manufacturing manufactures stuffed toys. The company uses a perpetual inventory system and has a highly labour intensive production procedure, so it allocates manufacturing overhead based on the direct labor hours.  Any manufacturing overhead variance is closed to Cost of Goods Sold. Fuller Manufacturing pre-determined overhead application rate for 2013 was calculated from the subsequent data:

Total estimated manufacturing overhead $480,000
Total estimated direct labor hours 8,000
 
At December 31, 2012, Fuller Manufacturing reported the following inventories:
Beginning materials inventory                       $140,000
Beginning work-in-process inventory               110,000
Beginning finished goods inventory                   90,000

Throughout the first quarter of 2013, Fuller Manufacturing actually employed 3,000 direct labor hours and recorded the subsequent transactions.

(i)  Materials purchased on account                                                   $250,000

(ii)  Materials requisitioned (includes $23,000 of indirect material)              283,000

(iii)  Manufacturing labor acquired                                                        350,000

(iv)  Manufacturing labor acquired   (80% direct and 20% indirect)  

(v)  Other manufacturing overhead acquired                                          120,000

(vi)  Applied manufacturing overhead for the period to March 31, 2013  60%

(vii)  Cost of stuffed dolls done                                                            750,000

(viii)  Stuffed dolls costing $780,000 were delivered to customers at a mark-up of 25% on costs.
 
Required:

(a) Calculate Fuller’s predetermined manufacturing overhead rate for 2013.

(b) Note down the journal entries necessary to record the above transactions in General Journal.  

(c) Compute the manufacturing overhead variance for Fuller Manufacturing and write down the journal entries necessary to dispose of this variance.

(d) What is the balance in Cost of Goods Sold account after the adjustment?
  
(e) Compute the March 31, 2013, balances into the three inventory accounts.


PART2. 

Goldman Company produces handles for kitchen cabinets through way of four consecutive processes: Molding, Mixing, Packing and Spraying. 

The following data relates to the Spraying Department for the month of October. 
Throughout October, 20,000 units valued at $628,500 were transferred from the Molding Department to the Spraying Department. 

Other costs incurred throughout the month were:

Direct Materials Added              $195,500
Direct Labor                            $258,000
Manufacturing Overhead            $241,200

Normal losses are estimated to be 5% of the units transferred in from Molding. Inspection takes place throughout the processing operation, at which point bad handles are separated from good handles and sold as scrap at $30 each.

At inspection, 3,000 handles were rejected as scrap. These units had reached the subsequent degree of completion:  

Transfer from Molding          100%
Direct material added            80%
Conversion costs                  50%

Work-in-progress at the end of October was 4,000 handles and had reached the subsequent degree of completion:

Transfer from Molding      100%
Materials added               60%
Conversion costs             40%

There were no incomplete units in the Spraying Department at the beginning of the period.
Materials added and conversion costs are acquired evenly throughout the process.

Required:

(a) Complete the template given to determine the equal units for the direct materials (From Molding & Materials added) and conversion costs.

(b) Calculate the cost per univalent unit for direct materials and conversion costs.   

(c) Calculate:  

- The total cost of the handles completed and transferred out to Packing Department.
- Cost of the unforeseen losses
- Cost of ending work in process inventory in Spraying Department.

(d) Make the Work in Process Inventory – Spraying Department T-account, clearly showing the ending balance.

(e) Write down the journal entries to record the assignment of direct materials and direct labor and the allocation of manufacturing overhead to the process throughout October. Also give the journal entry to record the cost of the units completed and transferred out to Packing Department.     

(f) Given that 30 units of the unforeseen losses were as a result of pilferage, compute Goldman Company true loss for the month of October.

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Cost Accounting: Pre-determined overhead application rate
Reference No:- TGS0798

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