Question

The Eagles Corporation uses a normal job-order costing system in its only production department. Overhead is applied to jobs by a plant-wide overhead rate based on direct labor hours. The first year of operation began on December 1, 2016. During the month of December, Eagles Corporation purchased direct material with a total cost of $4,000. Of the $4,000, Eagles Corporation used $500 on Job 100. Job 100 was the only job worked during the month of December. Eagles Corporation also charged $2,000 in conversion costs (direct labor and applied overhead) to Job 100 in December. JOB 100 WAS NOT FINISHED IN DECEMBER 2016. There was no overapplied or underapplied overhead for December.

For the new year (1/1/2017-12/31/2017), Eagles Corporation had the following transactions

1. Estimates for 2017 include $420,000 in overhead and 30,000 direct labor hours.

2. Direct materials purchased during 2017 cost a total of $84,000.

3. Direct materials were used on jobs during 2017 as follows:        JOB 100           $10,850

                                                                                                          JOB 101           $20,400

                                                                                                            JOB 102           $22,900

                                                                                                            JOB 103           $15,240

                                                                                                            JOB 104           $ 8,210

4. During 2017 there were 4,845 direct labor hours used on Job 100; 6,900 direct labor hours used on Job 101; 9,750 direct labor hours on Job 102; 5,850 direct labor hours on Job 103 and 2,916 direct labor hours on Job 104. The direct labor hours used during 2017 had a rate of $15.00 per hour

5. Other costs incurred during 2017 include the following:

            Advertising Expense                $ 280,000                    Administrative Expense                       $ 600,000

            Indirect Labor                         $   98,000                    Insurance – Factory                             $   20,000

            Maintenance-Factory              $   89,000                    Miscellaneous Overhead Expense       $   61,000

            Sales Salaries Expense $ 140,059                    Utilities-Factory                                  $   90,000

                                                Depreciation – Factory                        $ 70,000

6. By December 31, 2017, Jobs 100 and 101 were completed. Job 100 consisted of 5,936 and Job 101 consisted of 21,250 units.

7. All of Job 101 was sold during 2017 for $44 per unit. In addition, Eagles Corporation sold 5,000 of the 5,936 units for $80 per unit.

YOUR TASKS:

1. Compute the ending balance in Materials Inventory and Work in Process Inventory as of December 31, 2016. (Please note the Year!)

2. Without preparing a schedule or preparing any computations, what is the Cost of Goods Manufactured for December 31, 2016? (You should be able to do this in your head!)

3. Compute the Predetermined Overhead Rate for 2017.

4. Prepare, in good form, a fully complete Schedule of Cost of Goods Manufactured for 2017.

5. Add together the total cost charged to Jobs 100 and 101. Does this answer equal the amount of Cost of Goods Manufactured that you got in #4? Should it?

6. Compute the underapplied or overapplied overhead for 2017.

7. Prepare, in good form, an income statement for 2017.

8. Now assume that you are to allocate (prorate) the underapplied or overapplied overhead to the appropriate accounts. You should be able to figure out how much applied overhead is in Work in Process (what jobs are not complete?). You can assume that there is $34,765 of applied overhead in Finished Goods. Based on the total applied overhead for the year, you should be able to figure out how much applied overhead should be in Cost of Goods Sold. Do the proration and SHOW YOUR CALCULATIONS!

9. If you were to prepare a new income statement after prorating underapplied or overapplied overhead, would income be higher or lower than what you got in #7? By how much?

Answer 1

Statement of closing Raw material for 2016. (Figure in $)

	Opening	purchased	used	closing
Raw material	00	4000	500	3500
WIP raw material+ conv. cost.	00	00	500+2000	2500

Statement of cost of goods manufactured for 31/ Dec/ 2016

(As job 100 is the only job done so)

Particulars		Amount in $
Material (purchased)	4000
-closing	3500
Material used		500
+Conversation cost		2000
Total cost		2500

3) Budgeted overhead rate for 2017

Total overhead/ Direct labour hrs.

=$420,000/ 30,000

= $14

Statement of cost of goods manufactured in 2017. (Figures in $)

Material purchased	84000
+Opening	3500
-closing	9900	77600
Labour (30260*15)		453900
Prime cost		531500
Admin Overhead cost		1028000
Cost of goods manufactured		1559500