Salialailai Ltd manufactures water tanks for different sizes for use by industrial customers. The company uses a job costing system, in which manufacturing overhead is applied on the basis of direct labour hours. The company’s budget for the current year included the following estimates:
Budgeted total manufacturing overhead $504,000 Budgeted total direct labour hours 24,000 During March, the company started two production jobs:
? Job number ST81, consisting of 76 water tanks (Standard size)
? Job number MI45 consisting of 110 water tanks (midi size)
The transactions for March are described below:
1,000 square meters of aluminium sheet material were purchased on account for $6,000.
? 400 kilograms of aluminium tubing were purchased on account for $5,200
? The following requisitions were filed on 5 March:
? Requisition number 112: 260 square meters of aluminium sheet metal (for job number ST81) @ $5.50 per square meter.
? Requisition number 113: 1,100 kilograms of aluminium tubing (for job number MI45) @ $9 per kilogram
? Requisition number 114: 10 litres of superb glue @ $14 per liter. All aluminium used in production is treated as direct material. Superb glue is an indirect material.
? An analysis of labour time sheets revealed the following labour usage for March:
? Direct labour: job number ST81, 850 hours @ $20 per hour
? Direct labour: job number MI45, 950 hours @ $20 per hour
? Indirect labour: general factory clean up, $4,500
? Indirect labour: factory supervisory salaries, $9,600
? Depreciation of the factory building and equipment during March amounted to $13,000.
? Other manufacturing overhead costs incurred in March totalled $9,010.
? Sales and administrative expenses for March totalled $13,150.
? Job number ST81 was completed in March.
? 75% of the water tanks (Standard size) were sold on account during March for $700 each.
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The March 1st balances in selected accounts are as follows:
Cash $11,000
Accounts receivable 20,000
Raw material inventory 50,000
Manufacturing supplies inventory 600
Work in process inventory 89,600
Finished goods inventory 223,000
Accumulated depreciation 99,000
Accounts payable 14,500
Wages payable 8,500
Required:
1.Calculate the company’s predetermined overhead rate for the current year.
2. .Prepare and complete a job cost sheet for Job Number ST81
3.Prepare journal entries (without narration) for March to record the following (Note: Use summary entries where appropriate by combining individual job data):
i) the issue of raw material to production
ii) the labour costs incurred
iii) the manufacturing overhead costs incurred
iv) the application of manufacturing overhead to production
v) the completion of job(s) in March
vi) the sale of job(s) in March
4.Calculate the overapplied or underapplied overhead for March.
5. Prepare a journal entry to close this balance to Cost of goods sold.