Question

In: Accounting

Chaos Manufacturing had the following financial information for the year ended December 31 2019: Inventory Balances:               ...

Chaos Manufacturing had the following financial information for the year ended December 31 2019:

Inventory Balances:                Beginning                    Ending

Work in Progress                    $ 90,000                      $ 80,000

Finished Goods                       $ 77,000                      $ 67,000

Raw Materials                        $ 10,000                      $ 10,000

During the year, the budgeted and actual costs were as follows:

Note

Budget

Actual

Raw Materials

1

      300,000

     290,000

Labour

2

      540,000

     518,000

Depreciation Factory Equipment

       72,000

        72,000

Depreciation Office Equipment

        24,000

        24,000

Building Rent

3

      100,000

      100,000

Maintenance – Factory Equipment

        64,000

         40,000

Utilities – Electrical

4

    200,000

     180,000

Utilities - Gas

5

      100,000

        90,000

Sales Commissions

        40,000

        30,000

Advertising

        30,000

      20,000

Shipping

6

      20,000

        16,000

Total

1,490,000

1,380,000

Sales for the year were $1,500,000

Note 1 – Raw material

For both budget and actual materials: 90% of raw materials are traced directly to specific jobs, and the remaining 10% of raw materials are used throughout the production process and not traced. $290,000 in materials were purchased in the year.

Note 2 – Labour

Budget: Direct Labour $300,000 + Factory Salaries $80,000 + Head Office Salaries $160,000 = $540,000

Actual: Direct Labour $270,000 + Factory Salaries $85,000 + Head Office Salaries $163,000 = $518,000

Note 3 – Building Rent

The building is shared between the factory and the administrative office. 68% of the building is related to the factory, and the remaining 32% is related to the administrative office.

Note 4 – Utilities Electrical

For both budget and actual, 90% of these costs are related to the factory, and 10% of these costs are related to the administrative office.

Note 5 – Utilities - Gas

All of the Gas is used to heat production equipment.

Note 6 – Shipping

All of the shipping costs are to ship finished goods to customers

Note 7 – Manufacturing Overhead

The manufacturer uses Normal Costing. Overhead is allocated based on Direct Labour costs. Any under/over applied overhead is allocated to Cost of Goods Sold.

Required:

Show the T-accounting for Manufacturing Overhead for the year

Prepare an income statement. You may include a schedule of Cost of Goods Manufactured and Cost of Goods Sold as separate schedules or as part of the Income Statement.

Solutions

Expert Solution

Overhead allocation rate=Budgeted overhead/Budgeted direct labor cost
Budgeted overhead:
$
Raw materials (300000*10%) 30000
Factory salaries 80000
Depreciation Factory Equipment 72000
Building Rent-Factory (100000*68%) 68000
Maintenance – Factory Equipment 64000
Utilities – Electrical-Factory (200000*90%) 180000
Utilities - Gas 100000
Total 594000
Overhead allocation rate=594000/300000=$ 1.98 per direct labor cost
Manufacturing overhead
Particulars Debit Particulars Credit
Raw materials-Indirect (290000*10%) 29000 Overhead allocated 534600
Factory salaries 85000 (Actual DL cost*OH allocat. Rate) (270000*1.98)
Depreciation Factory Equipment 72000 Under-applied oerhead (Plug)
Building Rent-Factory (100000*68%) 68000 (To cost of goods sold) 11400
Maintenance – Factory Equipment 40000
Utilities – Electrical-Factory (180000*90%) 162000
Utilities - Gas 90000
546000 546000
Schedule of cost of goods manufactured and sold
$ $
Direct materials used:
Beginning balance of raw materials 10000
Add: Materials purchased 290000
Raw materials avaialble 300000
Less:
Ending balance of raw materials 10000
Indirect materials 29000
Direct materials used 261000
Direct labor 270000
Manufacturing overhead applied 534600
Total manufacturing costs 1065600
Add: Beginning work in process 90000
Total work in process inventory 1155600
Less: Ending work in process 80000
Cost of goods manufactured 1075600
Add: Beginning finished goods 77000
Goods available for sale 1152600
Less: Ending finished goods 67000
Cost of goods sold (Unadjusted) 1085600
Add: Under-applied overhead 11400

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