Question

Custom Automobile Restoration Shop (CARS) is a small shop dedicated to high-quality restorations of vintage cars. Although it will restore an automobile that a customer already owns, usually the shop buys an old vehicle, restores it, and then sells it in a private party sale or at a classic-car auction. The shop has been in existence for 10 years, but for the sake of simplicity, assume it has no beginning inventories for 2017. Five automobile restoration projects were worked on during 2017. By the end of the year, four of these projects were complete and three of them had been sold.

The following selected data are from CARS' 2017 budget:

Advertising	$	11,630
Direct materials		211,500
Direct labor		190,400
Rent on office space		10,700
Rent on factory space		32,100
Indirect materials		16,100
Maintenance costs for factory equipment		5,400
Utilities costs for office space		2,000
Utilities costs for factory space		4,200
Depreciation on factory equipment		12,600
Machine hours expected to be worked		4,200
Direct labor hours expected to be worked		6,800

The following information relates to production events during 2017:

• Raw materials were purchased for $217,100.
• Materials used in production totaled $209,600; $15,900 of these were considered indirect materials costs. The remaining $193,700 of direct materials costs related to individual restoration jobs as follows:

  Job Number	Direct Materials Cost
  701	$	44,300
  702		36,300
  703		43,000
  704		40,600
  705		29,500

• Labor costs incurred for production totaled $184,900. The workers are highly skilled craftsmen who require little supervision. Therefore, all of these costs were considered direct labor costs and related to individual restoration jobs as follows:

  Job Number	Direct Labor Cost
  701	$	41,000
  702		43,000
  703		49,500
  704		31,000
  705		20,400

• Paid factory rent of $30,300.
• Recorded depreciation on factory equipment of $13,100.
• Made $5,800 of payments to outside vendors for maintenance of factory equipment.
• Paid factory utilities costs of $4,300.
• Applied manufacturing overhead using a predetermined rate of $18.00 per machine hour. The 3,790 machine hours that were used relate to each job as follows:

  	Machine
  Job Number	Hours Worked
  701	780
  702	850
  703	920
  704	890
  705	350

• Completed all restoration jobs except Job 705 and transferred those projects to finished goods.
• Sold three jobs for the following amounts:

  Job Number	Sales Price
  701	$	127,000
  702		119,200
  703		111,700

• Closed the Manufacturing Overhead account to transfer any overapplied or underapplied overhead to the Cost of Goods Sold account.

Required

1. Assume CARS had used direct labor hours (versus machine hours) as its cost driver. Compute its predetermined overhead rate. (Round your answer to 2 decimal places.)

2. Determine the ending balance in Raw Materials Inventory.

3. Determine the ending balance in Finished Goods Inventory.

4. Determine the ending balance in Work in Process Inventory.

5. Determine the costs of goods manufactured.

6. Determine the amount of Cost of Goods Sold.

7. Determine the amount of gross margin that was earned on Jobs 701, 702, and 703.

8. Determine the amount of overapplied or underapplied overhead that existed at the end of the year.

(For all requirements, round your intermediate calculations to 2 decimal places.)

	a. Predetermined overhead rate per hour b. Ending balance in Raw materials c. Ending balance in Finished goods inventory d. Ending balance in Work in process inventory e. Cost of goods manufactured f. Cost of goods sold g. Gross margin for job 701 Gross margin for job 702 Gross margin for job 703 h. Over or underapplied overhead

Answer 1