Question

Brighton Services repairs locomotive engines. It employs 100 full-time workers at $14 per hour. Despite operating at capacity, last year's performance was a great disappointment to the managers. In total, 10 jobs were accepted and completed, incurring the following total costs.

Direct materials	$	1,045,400
Direct labor		4,200,000
Manufacturing overhead		975,000

Of the $975,000 manufacturing overhead, 40 percent was variable overhead and 60 percent was fixed.

This year, Brighton Services expects to operate at the same activity level as last year, and overhead costs and the wage rate are not expected to change. For the first quarter of this year, Brighton Services completed two jobs and was beginning the third (Job 103). The costs incurred follow.

Job	Direct Materials			Direct Labor
101	$	138,200		$	490,000
102		103,000			313,000
103		95,000			195,200
Total manufacturing overhead					272,200
Total marketing and administrative costs					120,000

You are a consultant associated with Lodi Consultants, which Brighton Services has asked for help. Lodi's senior partner has examined Brighton Services's accounts and has decided to divide actual factory overhead by job into fixed and variable portions as follows.

	Actual Manufacturing Overhead
	Variable		Fixed
101	$	30,900	$	105,000
102		28,500		89,200
103		5,600		13,000
	$	65,000	$	207,200

In the first quarter of this year, 40 percent of marketing and administrative cost was variable and 60 percent was fixed. You are told that Jobs 101 and 102 were sold for $855,000 and $570,000, respectively. All over- or underapplied overhead for the quarter is written off to Cost of Goods Sold.

Required:

a. Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year.

b. Using last year's overhead costs and direct labor-hours as this year's estimate, calculate predetermined overhead rates per direct labor-hour for variable and fixed overhead.

c. Present in T-accounts the normal manufacturing cost flows for the three jobs in the first quarter of this year. Use the overhead rates derived in requirement (b).

d. Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems.

Predetermined Overhead Rate (Per Direct Labor-Hour):

Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year. Materials Inventory 0 0 Beg. Bal. Beg. Bal. 0 138,200 101: DM 0103,000 102: DM 0 95,000 103: DM 0 0 ✓ Wages Payable o 0 0 490,000 101: DL 0 313,000 102: DL 0 195,200 103: DL 0 0 998,200 ✓ ✓ End. Bal. 336.200 End. Bal Actual PT Actual Variable Manufacturing Overhead 65,000 30,900101: Variable 0 28,500 102: Variable 0 5,600 103: Variable 0 0 ✓ Fixed Manufacturing Overhead 207,200 105,000 101: Fixed 0 89,200 102: Fixed 0 13,000 103: Fixed 0 0 ✓ End. Bal. End. Bal. Work-in-Process Inventory 0 0 Finished Goods Inventory 0 0 Beg. Bal. Total DM 336,200 764,100 764,100 1,297,800 Cost of Goods Sold Beg. Bal. Total 101 Finished Goods Total 102 Finished Goods Total 101 Finished Goods Total 102 Finished Goods Total DL 998,200 533,700 533,700 OOO O 0 0 0 Total Variable MOH Total Fixed MOH 65,000 207,200 0 308,800 0 0 0 End. Bal. End. Bal. Cost of Goods Sold Beg. Bal. Finished Goods 1,297,800 0 1,297,800 0 0 0 End. Bal.

Variable overhead rate$1.30

Fixed overhead rate$1.95

Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems. (Round your final answers to nearest whole dollar amounts. Loss amounts should be indicated with a minus sign.)

Materials Inventory Wages Payable Beg. Bal. 0 0 Beg. Bal. 0 0 0 138,200 101: DM 0 490,000 101: DL 0 103,000 102: DM 0 313,000 102: DL 0 95,000 103: DM 0 195,200 103: DL 0 0 0 0 End. Bal. 336,200 End. Bal. 998,200 Variable Manufacturing Overhead Fixed Manufacturing Overhead Actual 65,000 ??? 101: Variable Actual ??? ??? 101: Fixed Overapplied ??? ??? 102: Variable 0 ??? 102: Fixed 0 ??? 103: Variable 0 ??? 103: Fixed 0 0 0 0 End. Bal. 65000 0 ??? Underapplied End. Bal. Work-in-Process Inventory Finished Goods Inventory Beg. Bal. 0 0 Beg. Bal. 0 0 ??? ??? ??? Total 101 Finished Goods Total 101 Finished Goods ??? ??? Cost of Goods Sold ??? ??? ??? Total 102 Finished Goods Total 102 Finished Goods ??? 0 ??? ??? 0 0 0 ??? ??? 0 End. Bal. 0 0 End. Bal. Cost of Goods Sold Under-or Overapplied Overhead Beg. Bal. ??? 0 Beg. Bal. 0 0 Finished Goods ??? 0 ??? ??? ??? ??? 0 0 0 0 End. Bal. End. Bal.

	Actual Normal Operating profit (loss) ??? ???

Answer 1

Answer-c:

Materials Inventory		Wages Payable
Beg. Bal.	0	0			Beg. Bal.	0	0
	0	1,38,200	101: DM			0	4,90,000	101: DL
	0	1,03,000	102: DM			0	3,13,000	102: DL
	0	95,000	103: DM			0	1,95,200	103: DL
	0	0				0	0
End. Bal.		3,36,200			End. Bal.		9,98,200
Variable Manufacturing Overhead		Fixed Manufacturing Overhead
Actual	65,000	45,500	101: Variable		Actual	2,07,200	68,250	101: Fixed
Overapplied	27,690	29,064	102: Variable			0	43,596	102: Fixed
	0	18,126	103: Variable			0	27,189	103: Fixed
	0	0				0	68,165	Underapplied
End. Bal.						0	0
					End. Bal.
Work-in-Process Inventory		Finished Goods Inventory
Beg. Bal.	0	0			Beg. Bal.	0	0
Total DM	3,36,200	3,00,950	Total 101 Finished Goods		Total 101 Finished Goods	3,00,950	7,89,610	Cost of Goods Sold
Total DL	9,98,200	4,88,660	Total 102 Finished Goods		Total 102 Finished Goods	4,88,660	0
Total Fixed MOH	92,690	0				0	0
Total Variable MOH	1,39,035	0			End. Bal.
	0	0
End. Bal.	7,76,515
Cost of Goods Sold		Under-or Overapplied Overhead
Beg. Bal.	0	0			Beg. Bal.	0	0
Finished Goods	7,89,610	0			Under-applied	68,165	27,690	Over-applied
	0	0				0	0
End. Bal.	7,89,610				End. Bal.	40,475

Total direct labor hor = $4,200,000/$14 = 300,000 DLH

Total Variable Manufacturing Overhead Applied:
Job	DLH	Variable Mfg OH per DLH	Variable Mfg OH applied
101	$490,000/14 = 35,000	$       1.30	$       45,500
102	$313,000/14 = 22,357	$       1.30	$       29,064
103	$195,200/14 = 13,943	$       1.30	$       18,126
		Total	$       92,690

Total Fixed Manufacturing Overhead Applied:
Job	DLH	Fixed Mfg OH per DLH	Variable Mfg OH applied
101	$490,000/14 = 35,000	$       1.95	$    68,250
102	$313,000/14 = 22,357	$       1.95	$    43,596
103	$195,200/14 = 13,943	$       1.95	$    27,189
		Total	$1,39,035

Total 101 Finished Goods = $138,200 + 490,000 + 45,500 + 68,250 = $300,950

Total 102 Finished Goods = $103,000 + 313,000 + 29,064 + 43,596 = $488,660

Answer-d:

	Actual	Normal
Sales revenue	$        1,425,000	$        1,425,000
Less: Cost of goods sold	1,297,800	789,610
Less: Under-applied overhead		40,475
Gross profit	127,200	594,915
Marketing and administrative expense	120,000	120,000
Operating profit	$               7,200	$           474,915