Question

Budgeted overhead cost		$1,050,000
Estimated machine hours		50,000
Estimated direct labor hours		10,000
Estimated direct materials cost		$1,500,000

Maverick’s inventory count, completed on December 31, 2016, revealed the following ending inventory balances:

Raw Materials Inventory		$250,000
Work in Process Inventory		$626,000
Finished Goods Inventory		$340,000

The company’s 2017 payroll data revealed the following actual payroll costs for the year:

Job Title		Number Employed		Wage Rate per Hour		Annual Salary per Employee		Total Hours Worked per Employee
President and CEO		1				$225,000
Vice president and CFO		1				$178,000
Factory manager		1				$40,000
Assistant factory manager		1				$32,000
Machine operator		5		$14.5				2,250
Security guard, factory		2				$20,000
Forklift operator		2		$7.5				2,000
Corporate secretary		1				$35,000
Janitor, factory		2		$6				2,150

The following information was taken from Maverick’s Schedule of Plant Assets. All assets are depreciated using the straight-line method.

Plant Asset		Purchase Price		Salvage Value		Useful Life
Factory building		$4,000,000		$150,000		20 Years
Administrative office		$650,000		$125,000		30 Years
Factory equipment		$2,000,000		$20,000		12 Years

Other miscellaneous costs for 2017 all paid in cash included:

Cost		Amount
Factory insurance (fully expired)		$14,000
Administrative office utilities		$6,000
Factory utilities		$32,000
Office supplies (fully consumed)		$5,000

Additional information about Maverick’s operations in 2017 includes the following:

•	Raw materials purchases for the year amounted to $1,945,000. All materials were purchased on account.
•	The company used $1,870,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials.
•	Maverick applied overhead to Work in Process Inventory based on direct materials cost.
•	Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory.
•	Maverick uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000. All sales are made on account. (Note: This transaction requires two journal entries.)

Prepare the journal entries to record Maverick’s costs for 2017. (Use Salaries Payable and Wages Payable accounts for payroll costs.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Post entries in order presented in the problem. Round answers to 0 decimal places, e.g. 5,275.)

Prepare the appropriate T-accounts for Raw Materials Inventory, Work-in-Process Inventory, Finished Goods Inventory, Manufacturing Overhead Control, Cost of Goods Sold, and Sales, and record Maverick’s transactions for 2017. (Post entries in order presented in the problem. Round answers to 0 decimal places, e.g. 5,275.)

Was manufacturing under- or overapplied in 2017? By how much? (Round answer to 0 decimal places, e.g. 5,275.)

Make the adjusting entry necessary to close the under- or overapplied overhead to cost of goods sold. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
If Maverick chooses instead to prorate under- or overapplied overhead, what are the adjusted Work in Process Inventory, Finished Goods Inventory and Cost of Goods Sold account balances for 2017? (Round % of total to 2 decimal places, e.g. 55.75 and final answers to 0 decimal places, e.g. 5,275.)

Job 3827 was started and completed in 2017. The job required 500 machine hours, 300 direct labor hours, and $75,000 in direct materials to complete. What was the total cost of this job? Using Maverick’s 80% markup, what sales price would be charged for this airplane? (Round answers to 0 decimal places, e.g. 5,275.)
If Maverick had chosen to use machine hours as its overhead application base, what would the rate have been in 2017? (Round answer to 2 decimal places, e.g. 52.75.)

Answer 1