Question

The Detroit Gear Corporation uses Normal Job-Order Costina in its only production department. On began business applied to jobs by a predetermined rate, which is based on direct labor hours. The Company began w December the on December 1, 2018. The only fob started into process during December was Job 450. During Decem Company purchased direct materials with a total cost of $45.000. $2.500 of these direct materiais wa on Job 450. The Company also charged a total of $7,550 in conversion costs to Job 450 during Decer h 450 during December. Job 450 was NOT finished as of the end of December and no other jobs were worked on during them There was no underapplied or overapplied overhead for December The following transactions occurred during 2019. 1. Estimated overhead for 2019 is $1,250,000. The estimated direct labor hours for 2019 total 200,000. 2. Direct materials purchased during 2019 cost a total of $750,000. 3. Direct materials were used on jobs during 2019 as follows: Job 450 $150,250 Job 500 $180,750 Job 550 $237,125 Job 600 $131,875 4. During 2019, direct labor hours were charged to jobs as follows: Job 450 45,000 hours Job 500 56,100 hours Job 550 60,800 hours Job 600 23,100 hours All direct labor hours used during 2019 had a rate of $20 per hour. 5. Other Costs incurred during 2019 include the following: Factory Equipment Calibration $125,000 Factory Employee Training 85,000 Indirect Labor 370,000 Accounting Dept. Salaries 175,000 Other Selling & Administrative Salaries 250,000 Indirect Material 50,000 Factory Insurance 136,000 Factory Utilities 120,000 Selling & Administrative Utilities 24,000 Miscellaneous Overhead 123,000 Misc. Selling & Administrative Expense 8,250 Factory Equipment Depreciation 175,000 Finished Goods Warehouse Depreciation 7,500 6. Jobs 450, 500 and 550 were completed during the year. Job 450 consisted of 268,310 units; Job 500 consisted 110,296 units; and Job 550 consisted of 153,015 units. 7. 200,000 units of Job 450 were sold and all units of Job 550 were sold at the following sales prices: Job 450 sold at $8 per unit Job 550 sold at $13 per unit No units of Job 500 were sold during 2019.

Answer 1

D. SCHEDULE FOR COST OF GOODS MANUFACTURED FOR 2019:

PARTICULARS	AMOUNT($)
Direct Materials
Beginning inventory	42,500
Add: Purchases of Raw Materials	750,000
Deduct: Ending Inventory	92,500
Direct Material Used in Production	700,000
Direct Labour	3,700,000
Manufacturing Overhead	1,648,750
Total Manufacturing Costs	6,048,750
Add: Beginning WIP Inventory	10,050
Deduct: Ending WIP Inventory [Working note 1]	799,745
COST OF GOODS MANUFACTURED	5,259,055

Working note 1:

Job 600 was not completed during the year 2019 so that would be the closing WIP Inventory

For Job 600:

PARTICULARS	AMOUNT ($)
Direct Material used	131,875
Direct Labour(23,100*20)	462,000
Manufacturing Overhead (1,648,750/185,000 * 23,100)	205,870
TOTAL	799,745

                               

        

E. Total Cost of Job 450,500,550:

For Job 450:

PARTICULARS	AMOUNT ($)
Direct Material used	150,250
Direct Labour(45,000*20)	900,000
Manufacturing Overhead (1,648,750/185,000 * 45,000)	401,050
TOTAL	1,452,300

        

For Job 500:

PARTICULARS	AMOUNT ($)
Direct Material used	180,750
Direct Labour(45,000*20)	1,122,000
Manufacturing Overhead (1,648,750/185,000 * 45,000)	499,972
TOTAL	1,802,722

               

For Job 550:

PARTICULARS	AMOUNT ($)
Direct Material used	237,125
Direct Labour(45,000*20)	1,216,000
Manufacturing Overhead (1,648,750/185,000 * 45,000)	541,860
TOTAL	1,994,985

Total cost of Job 450,500,550=5,249,007

The total cost of Job 450,500,550 should not be equal to the Cost of Goods Manufactured.

The difference in Part D and Part E is the Beginning WIP Inventory because the total cost in Part E does not include Beginning WIP Inventory of Job 450.

F. Computation of Under-applied or Over-applied Overheads:

Estimated Overheads = $1,250,000

Estimated Labour Hours = 200,000 hrs

Estimated Overhead Rate = 1,250,000/200,000 = $6.25

Actual Overheads = $1,648,750

Actual Labour Heads = 185,000 hrs

Actual Overhead Rate = $ 8.91

Hence, Overheads are Under-applied.

Under-applied overheads = 8.91-6.25 *185,000 = $ 492,100