Question

1. Southern Rim Parts estimates its manufacturing overhead to be $454,500 and its direct labor costs to be $1,010,000 for year 1. The first three jobs that Southern Rim worked on had actual direct labor costs of $60,000 for Job 301, $85,000 for Job 302, and $150,000 for Job 303. For the year, actual manufacturing overhead was $424,000 and total direct labor cost was $839,000. Manufacturing overhead is applied to jobs on the basis of direct labor costs using predetermined rates.
Required:

a. How much overhead was assigned to each of the three jobs, 301, 302, and 30?

b. What was the over- or underapplied manufacturing overhead for year 1?

2. Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50 percent. The following information is available for physical units during March.

Work in process, March 1 (70% complete as to conversion costs)	158,000
Units started in March	616,000
Units transferred to Finishing Department in March	646,000
Work in process, March 31 (30% complete as to conversion costs)	128,000

Required:

a. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method.

b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

3. Ferdon Watches, Inc., makes four models of watches, Gag-Gift, Commuter, Sport, and Retirement. Ferdon manufactures the watches in four departments: Assembly, Polishing, Special Finishing, and Packaging. All four models are started in Assembly where all material is assembled. The Gag-Gift is transferred to Packaging, where it is packaged and transferred to finished goods inventory. The Commuter and Sport are assembled, then transferred to Polishing. Once the polishing process is completed, they are transferred to Packaging and then finished goods. The Retirement model is assembled and then transferred to Special Finishing, and then Packaging. When packaged, it is transferred to finished goods.

Data for October are shown in the following table. Conversion costs are allocated based on the number of units processed in each department.

		Total		Gag-Gift (8,200 units)			Commuter (13,200 units)			Sport (19,400 units)			Retirement (5,200 units)
Materials	$	412,000		$	41,000		$	99,000		$	194,000		$	78,000
Conversion costs:
Assembly	$	230,000
Polishing		130,400
Special Finishing		62,400
Packaging		184,000
Total conversion costs	$	606,800

Required:

b. What is the cost per unit transferred to finished goods inventory for each of the four watches in October? (Round "Cost Per Unit" to 2 decimal places.)

Answer 1

Question No. - (1) - Answer -

Information Given -

Southern Rim Parts estimates its manufacturing overhead to be $454500 and its direct labor costs to be $1010000 for year 1.

The first three jobs that Southern Rim worked on had actual direct labor costs of -

• $60000 for Job 301,
• $85000 for Job 302,
• $150000 for Job 303.

For the year, actual manufacturing overhead was $424000.

.

Answer - (a) - Calculation of Overhead applied to each job in year 1 -

Overhead Rate = Estimated manufacturing overhead / Estimated direct labor costs

= $454500 / $1010000

= 0.45

Particulars	Actual direct labor costs	Calculations	Amount ($)
Job 301	$60000	[$60000 * 0.45]	$27000
Job 302	$85000	[$85000 * 0.45]	$38250
Job 303	$150000	[$150000 * 0.45]	$67500
Applied manufacturing overhead			$132750

.

Answer - (b) - Calculation of the Over or Underapplied manufacturing overhead for year 1 -

= Actual manufacturing overhead - Applied manufacturing overhead

= $424000 - $132750

= $291 250

Therefore, Underapplied manufacturing overhead = $291250.