MA question complete solutions correct answers key

MA question complete solutions correct answers key

Question 1

Singa Handicrafts Ltd manufactures antique furniture. The company uses a job costing system and manufacturing overhead is applied on the basis of direct labour hours.

In the budget for the current year, the following budgeted costs were included:

Manufacturing overhead - $420,000
Direct labour cost - $240,000
Budgeted direct labour rate - $30 per hour

On 1 August, the company had the following balances:

Work in process inventory

Job number 83 - $42,000
Job number 84 - $26,750

Raw materials inventory

Direct materials - $7,500
Indirect materials - $3,500

Finished goods inventory - $0

During the month, the following occurred:

(i) The company worked on four jobs. The costs incurred and direct labour hours consumed were as shown below:

Job Number

Direct material

Direct labour

Direct labour hours

83

10,500

17,500

600

84

0

11,000

350

85

?

32,500

1,000

86

7,500

4,400

250

(ii) Overhead for the month were as follow:

Indirect materials (all were used in production)

?

Depreciation - plant & machineries

$17,000

Depreciation - delivery vans

$2,500

Salaries - production

$30,000

Salaries - sales & administration

$25,000

Other factory costs

$69,750

Other selling and administration costs

$40,000

(iii) Raw material purchased on credit

Direct material

$37,500

Indirect material

$27,500

(iv) Spoilage & reworked costs

Job Number 83 - Normal spoilage amounting to $190 and abnormal spoilage of $50 were incurred.

Job Number 84 - Normal spoilage with estimated disposal selling price of $200 was incurred.

Job Number 85 - Rework cost of $140 was incurred

(v) The company completed job number 83 and job number 84. Job number 84 was sold on credit at the selling price that will enable the company to earn a gross profit margin of 50%.

(vi) On 31 August, the company had the following balances:

Work in process:

Job number 85                   ?
Job number 86                   ?

Raw materials inventory

Direct materials    $5,000
Indirect materials $6,000

Finished goods inventory ?

Required:

(a) Determine the company's predetermined overhead rate.

(b) Compute and show the following:

(i) The cost of direct material issued to the job number 85.
(ii) The cost of indirect material to be included in the manufacturing overhead.

(c) Illustrate the journal entries to record the following:

(i) Issue of direct material to production and the direct labour incurred.

(ii) Manufacturing overhead incurred during the month.

(iii) Application of overhead to production.

(iv) The costs of spoilage, rework and scrap.

(v) Completion of job numbers 83 and job number 84.

(vi) The sale of job number 84.

(d) Determine the cost of the jobs that were still in production as at 31 August.

(e) Calculate the cost of the finished goods inventory as at 31 August.