Question

FiberCom, Inc., a manufacturer of fiber optic communications equipment, uses a job-order costing sys-tem. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budgeted manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours (the company’s estimated practical capacity). Operations for the year have been completed, and all of the accounting entries have been made for the year except the application of manu-facturing overhead to the jobs worked on during December, the transfer of costs from Work-in-Process to Finished-Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and for the month of December are presented in the following table. Jobs T11-007, N11-013, and N11-015 were completed during December. All completed jobs except Job N11-013 had been turned over to customers by the close of business on December 31

Work-in-Process December Activity

Job No. Balance November 30 Direct Material Direct Labor Machine Hours

T11-007 .....................$ ??????87,000 $ ? 1,500 ..........................$ ? 4,500 ......................... 300

N11-013 .................... 55,000 ?? 4,000 .......................... 12,000 .........................1,000

N11-015 .................... -0- ?????? 25,600 .......................... 26,700 .........................1,400

D12-002 .................... -0- ?????? 37,900 .......................... ?20,000 .........................2,500

D12-003 .................... ??? -0- 26,000 .......................... 16,800 .........................  ? 800

Total .......................$142,000 $95,000 ..........................$80,000 .........................6,000

Operating Activity Activity through November 30 December Activity

Actual manufacturing overhead incurred:

Indirect material .................................... $ ?125,000 .......................... $ 9,000

Indirect labor ......................................... ? 345,000 .......................... 30,000

Utilities ................................................... ? 245,000 .......................... 22,000

Depreciation .......................................... 385,000 .......................... 35,000

Total overhead ...................................... $1,100,000 .......................... $96,000

Other data:

Raw-material purchases* ...................... $ ?965,000 .......................... $98,000

Direct-labor costs .................................. $ ?845,000 ......................... .$80,000

Machine hours ....................................... ?73,000 ......................... .6,000

.Account Balances at Beginning of Year January 1

Raw-material inventory* ............................ $105,000

Work-in-process inventory ......................... ? 60,000

Finished-goods inventory .......................... 125,000

*Raw-material purchases and raw-material inventory consist of both direct and indirect materials. The balance of the Raw-Material Inventory account as of December 31 of the year just completed is $85,000..

Required:

1. Explain why manufacturers use a predetermined overhead rate to apply manufacturing overhead to their jobs.

2. How much manufacturing overhead would FiberCom have applied to jobs through November 30 of the year just completed?

3. How much manufacturing overhead would have been applied to jobs during December of the year just completed?

4. Determine the amount by which manufacturing overhead is overapplied or underapplied as of December 31 of the year just completed.

5. Determine the balance in the Finished-Goods Inventory account on December 31 of the year just completed.

6. Prepare a Schedule of Cost of Goods Manufactured for FiberCom, Inc. for the year just completed. (Hint: In computing the cost of direct material used, remember that FiberCom includes both direct and indirect material in its Raw-Material Inventory account.)

NEED #6 FIGURED OUT PLEASE

Answer 1

How much manufacturing overhead would Valport have allocated to jobs through November 30, 20xx?

Ans

Valport is using pre determined overhead rate for allocating manufacturing overhead. The basis of allocating manufacturing overhead is $15 per machine hour given in the assignment

To calculate the manufacturing overhead allocated through November 30 , 20xx

Step 1 – first calculate the machine hours for activity through 11/30/xx , which is given 73,000 machine hours

Step 2 – apply the pre determined overhead rate @ $15 per machine hour

Step 3 – multiply the total machine hours with the pre determined rate as given below

Manufacturing overhead allocated = 73,000 x $15 = $1,095,000

How much manufacturing overhead would be allocated to jobs by Valport during December 20xx?

Ans

Valport is using pre determined overhead rate for allocating manufacturing overhead. The basis of allocating manufacturing overhead is $15 per machine hour given in the assignment

To calculate the manufacturing overhead allocated During December , 20xx

Step 1 – first calculate the machine hours for activity During December , 20xx, which is given 6,000 machine hours

Step 2 – apply the pre determined overhead rate @ $15 per machine hour

Step 3 – multiply the total machine hours with the pre determined rate as given below

Manufacturing overhead allocated = 6,000 x $15 = $90,000

Determine the amount by which the manufacturing overhead is overallocated or underallocated as of December 31, 20xx?

Ans

It is assumed when the actual manufacturing overhead expenses are less than pre -determined allocated manufacturing overhead expenses than it will termed as manufacturing overhead is over allocated or over applied

If the actual manufacturing overhead expenses are more than pre -determined allocated manufacturing overhead expenses than it will termed as manufacturing overhead is under allocated or under applied

To determine if manufacturing overhead is over allocated or under allocated as of December 31.20XX

Step 1 – first calculate the actual manufacturing overhead expenses incurred through November 30 , 20xx and During December , 20xx , which is calculated below

Actual manufacturing overhead expenses = $1,100,000 + $96,000 = $1,196,000

Step 2 – calculate the pre determined allocation of manufacturing overhead incurred through November 30 , 20xx and During December , 20xx , which is calculated below

Pre determined allocation of manufacturing overhead expenses = $1,095,000 + $90,000 = $1,185,000

Step 3 – The actual manufacturing overhead expenses of $1,196,000 is more than pre determined allocated manufacturing overhead of $1,185,000   as such the manufacturing overhead is under allocated by

Manufacturing overhead under allocated = $1,196,000 - $1,185,000 = $11,000

The Manufacturing overhead under allocated by $11,000

Determine the balance in Valport Company's Finished-Goods Inventory account on December 31, 20xx? (Hint: which completed job(s) are still in the finished goods warehouse as of December 31, 20xx?)

Ans

The jobs which are completed are transferred from Work –in- process to finished goods inventory a/c and the finished goods which are sold to customers are transferred from finished goods inventory a/c to Cost of goods sold account

To determine the balance as on 31^st December ,20XX

Step 1 – determine the jobs which are completed are transferred to finished goods inventory a/c . As given in the problem Jobs T11-007, N11-013, and N11-015 were completed during December.

Step 2 – Determine the jobs in finished goods inventory sold to customers. As given in the problem T11-007, N11-015 are sold to customers

Step 3 – The jobs which are in finished goods inventory is as on 31^st Dec , 20XX is job N11-013

Step 4 – Determine the amount transferred from work in process for job N11-013 . which is calculated below

Total amount of WIP of Job N11-013 = Closing balance on 11/30/XX + Direct material expenses in December + Direct labor expenses in December + allocation of pre determined manufacturing overhead in December

Where given

Closing balance on 11/30/XX = $ 55,000

Direct material expenses in December = $ 4000

Direct labor expenses in December = $ 12,000

allocation of pre determined manufacturing overhead in December

= machine hours x pre determined allocation manufacturing overhead rate

= 1000 x $15

= $15,000

Putting the values is the formula we get

Total amount of WIP of Job N11-013 transferred to Finished goods inventory in December

= $ 55,000 + $4,000 +$12,000 + $ 15,000

= $86,000

The finished goods inventory as on 31st december 20XX for the jobs finished and still in account is $86,000 for Job N11-013