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.

Answer 1

rA)   Material inventory                                                  

beg bal	0	0
	0	138,200	101 dm
	0	103,000	102 dm
	0	95,000	103 dm
	0	0
end bal		336,200

wages payable

beg bal	0	0
	0	490,000	101 dl
	0	313,000	102dl
	0	195,200	103 DL
	0	0
end bal		998,200

variable manufacturing overhead

actual	65,000	30,900	101 variable
	0	28,500	102 v
	0	5,600	103 v
	0	0
end bal

 fixed MOH

  

actual	207,200	105,000	101 fixed
	0	89,200	102 fixed
	0	13,000	103 fixed
	0	0
end bal

WIP inventory

beg bal	0	0
total dm	336,200	764,100	total 101 finished goods
total DL	998,200	533,700	total 102 ''  ''
total variable overhead	65,000	0
total fixed overhead	207,200	0
	0	0

101  138,200+ 490,000+ 105,000+ 30,900= 764,100 

102   103,000+ 313,000+ 89,200+  28,500= 533,700

from the two chats above

finished goods inventory

beg bal	0	0
total 101 finished goods	764,100	1,297,800	Cost of goods sold
total 102 '' ''	533,700	0
	0	0
end bal

764,100+533,700=  1,297,800

COGS (cost of goods sold)

beg bal	0	0
finished goods	1,297,800	0
	0	0
end bal	1,297,800

Answer 2

rB) 975,000* 40%= 390,000 variable

      975,000*60%= 585,000  fixed

4,200,000/14= 300,000 dl hours

variable 390,000/300,000=1.3

fixed 585,000/300,000= 1.95

Answer 3

rC) Material inventory

beg bal	0	0
	0	138,200	101 dm
	0	103,000	102 DM
	0	95,000	103 DM
	0	0
end bal		336,200

wages payable

beg bal	0	0
	0	490,000	101 DL
	0	313,000	102 DL
	0	195,200	103 DL
	0	0
end bal		998,200

variable manufacturing overhead (MOH)

actual	65,000	45,500	101 variable
overapplied	27,690	29,064	102 variable
	0	18,126	103 variable
	0	0
end bal

101 v: 490,000/14 * 1.3=  45,500

102 v: 313,000/14 * 1.3=  29,064.285714286 or 29,064

103 v:  195,200/14 * 1.3= 18,125.714285714 or 18,126 round 1 since above 5

total variable 45,500+ 29,064+ 18,126= 92,690

overapplied 92,690-65,000=  27,690

Fixed MOH

actual	207,200	68,250	101 fixed
	0	43,596	102 fixed
	0	27,189	103 fixed
	0	68,165	underapplied
	0	0
end bal

101 f: 490,000/14 *1.95= 68,250

102 f: 313,000/14 *1.95= 43,596.428571429 or 43,596

103f: 195,200/14 *1.95= 27,188.571428571 or 27,189

total fixed 68,250+ 43,596+ 27,189= 139,035

underapplied 207,200-139,035= 68,165

WIP inventory

beg bal	0	0
total DM	336,200	741,950	total 101  finished goods
total DL	998,200	488,660	total 102  finished goods
total fixed MOH	139,035	0
total variable  MOH	92,690	0
	0	0
end bal

101 138,200+ 490,000+ 45,500(variable rC)+ 68,250(fixed rC)= 741,950

102 103,000+ 313,000+ 29,064+ 43,596= 488,660

Finished goods inventory

beg bal	0	0
total 101  finished goods	741,950	1,230,610	COGS
total 102 finished goods	488,660	0
	0	0
end bal

741,950+ 488,660= 1,230,610

COGS

beg bal	0	0
finished goods	1,230,610	0
	0	0
end bal

under or overapplied overhead

beg bal	0	0
underapplied	68,165	27,690	overapplied
	0	0
end bal	40,475	0

68,165-27,690= 40,475

Answer 4

rD) Actual

sales revenue 855,000+570,000= 1,425,000

less COGS: 1,297,800 from rA )COGS 

gross margin: 1,425,000- 1,297,800= 127,200

Less:(under-) overapplied overhead: 0 no t-chart for part A

Marketing and administrative cost: 120,000 from problem explination

Operating profit (loss): 127,200- 120,000= 7,200

Normal

sales revenue 855,000+570,000= 1,425,000

less COGS:  1,230,610   from rC )COGS 

gross margin: 1,425,000- 1,230,610= 194,390

Less:(under-) overapplied overhead: 40,475 from part C t0chart

Marketing and administrative cost:: 120,000

Operating profit (loss): 194,390- 40,475- 120,000= 33,915

Answer 5

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

		MATERIALS INVENTORY
		AMT $			AMT($)
Beginning balance		0	Direct Materials (101)		138200
		0	Direct Materials (102)		103000
		0	Direct Materials(103)		95000
Closing Balance		0			336200

			Wages payable
		AMOUNT $			AMOUNT $
Beginning balance		0		Direct Labour
				101	490000
				102	313000
				103	195200
Closing Balance		0			998200

	VARIABLE MANUFACTURING OVERHEAD
		AMT $			AMT $
Beginning	Balance	0		101	30900
				102	28500
				103	5600
Closing Balance		65000			65000

		FIXED MANUFACTURING OVERHEAD
		AMT $		AMT $
Beginning balance		0	101	105000
			102	89200
			103	13000
closing balance		207200		207200

			Work in progress Inventoty
				Amount $				Amount $
	beginning balance		0	Total finished goods
	TotaL Direct materials		336200		101		764100*
	TotaL Direct Labour		998200		102		533700*
	total variable Overhead		65000
	total fixed overhead		207200
	closing Bal			Closing balance			308800
			1606600				1606600

	Finished goods Inventory
		Amount $				Amount $
Beginning balance		0		Cost of goods sold		1297800
Total finished goods
	101	764100
	102	533700
		1297800				1297800

			Cost of goods Sold
beginning balance		0
Finished goods		1297800
		1297800		1297800

** cost of goods sold= direct materials+Direct labour+Manufacturing overhead(fixed +variable)

cost of goods sold of 101 =138200+490000+30900+105000=764100

102 =103000+313000+28500+89200=533700

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.

			Predetermined Overhead Rate (per Direct Labour Hour)
Variable overhead rate			$ 1.30
Fixed Overhead rate			$1.95
Variable overhead rate=	$ 975000*40/100=390000/300000= $1.30
direct labour hours = $	$ 4200000/14=300000 hours
Fixed overhead rate= 975000*60/100=585000/300000=$1.95

c)