Question

Avid Assemblers uses normal job-order costing to assign costs to products. The company assembles and packages 25 different products according to customer specifications. Products are worked on in batches of 20 to 40 units. Each batch is given a job number. On October 1, the company had the following balances:

Raw materials	$ 9,800
Work in process	65,847
Finished goods	30,640

Work in process consisted of the following jobs:

	Job 22	Job 24	Job 25
Direct materials	$  6,200	$  5,190	$  4,800
Direct labour	10,500	9,210	9,500
Applied overhead	7,350	6,447	6,650
Total	$24,050	$20,847	$20,950
Number of units	20	40	30

Finished goods consisted of Job 23, with the following costs:

Direct materials	$  8,200
Direct labour	13,200
Applied overhead	9,240
Total	$30,640
Number of units	50

Shown below are the direct cost data related to jobs started in October:

	Job 26	Job 27	Job 28	Total
Direct materials	$  5,180	$5,600	$4,200	$14,980
Direct labour	$11,200	$9,340	$5,910	$26,450
Number of units	20	30	20

Other information:

·                1.Direct materials and direct labour added to beginning work in process in October were as follows:

	Job 22	Job 24	Job 25	Total
Direct materials	$1,150	$  610	$1,500	$  3,260
Direct labour	3,000	4,500	5,500	$13,000

·                2.Overhead is applied at a predetermined rate based on the direct labour cost.

·                3.Actual expenses for October were as follows:

Supervisory salaries	$6,000	Supplies (factory)	$2,100
Factory rent	5,000	Selling expenses	8,500
Depreciation (machines)	5,000	Property tax and insurance	2,250
Indirect labour	4,000	CPP, EI, and other benefits	a	4,200

·                4.Purchases of direct materials (raw materials) during October amounted to $28,500. Indirect materials (supplies) are handled in a separate account.

·                5.Only Jobs 27 and 28 are still in process at closing on October 31. Finished goods consisted only of Job No. 25 at month end.

·                6.Avid writes off any under- and over-applied overhead to Cost of Goods Sold in the month in which it is incurred.

Instructions

a.  Calculate the predetermined overhead rate used by Avid to apply overhead to jobs.

b.  Calculate the unit cost of Job No. 24 in October.

c.  Calculate the October 31 balances for the following inventory accounts.

·       1.Raw Materials

·       2.Work in Process

·       3.Finished Goods

d.  What is the cost of goods manufactured in October? (You do not have to prepare a statement.)

e.  Determine the under- or over-applied overhead for October and prepare the journal entry to dispose of this amount.

Answer 1

Answer 1.
Predetermined Overhead Rate = Overhead Applied / Direct Labor = $7,350 / $10,500
Predetermined Overhead Rate = $0.70 per DL
Answer 2.
	Job						Total
	22	24	25	26	27	28
Beginning Balance	24,050.00	20,847.00	20,950.00	-	-	-	65,847.00
Direct Materials	1,150.00	610.00	1,500.00	5,180.00	5,600.00	4,200.00	18,240.00
Direct Labor	3,000.00	4,500.00	5,500.00	11,200.00	9,340.00	5,910.00	39,450.00
Applied Overhead - $0.70 per DL	2,100.00	3,150.00	3,850.00	7,840.00	6,538.00	4,137.00	27,615.00
Total	30,300.00	29,107.00	31,800.00	24,220.00	21,478.00	14,247.00	151,152.00
No. Of Units	20.00	40	30	20	30	20
	FG	FG	FG	FG	WIP	WIP
Unit Cost of Job No 24 = $29,107 (total Cost) / 40 Units = $727.675 or say $727.68 (Approx.)
Answer c.
Raw Material - Ending Inventory
Raw Material - Beginning Inventory	9,800.00
Add: Purchases	28,500.00
Total Raw Material Available	38,300.00
Raw Material Used	(18,240.00)
Raw Material, Ending Balance	20,060.00
Work In Progress Ending Balance
Job No 27	21,478.00
Job No 28	14,247.00
Total Ending WIP	35,725.00
Finished Goods Inventory, Ending
Job No 25	31,800.00
Total Finished Goods Inventory, Ending	31,800.00
Answer d.
Cost of Goods Manufactured
Beginning WIP	65,847.00
Add: Manufacturing Costs	85,305.00
	151,152.00
Less: Ending WIP	35,725.00
Cost of Goods Manufactured	115,427.00
Answer e.
Actual Overhead
Supervisory Salaries	6,000.00
Factory Rent	5,000.00
Depreciation (Machines)	5,000.00
Indirect Labor	4,000.00
Supplies (Factory)	2,100.00
Property Tax & Insurance	2,250.00
CPP, EI and other benefits	4,200.00
Total Actual Overheads	28,550.00
Total Actual Overheads	28,550.00
Applied Overhead	27,615.00
Underapplied Overhead	935.00

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Cost of Goods Sold	935.00
	Manufacturing Overhead		935.00
	(record the underapplied overhead)