Cost and Management Accounting

M. Evans & Sons manufactures parts for radios. For each job order, they maintain ledger sheets on which they record direct materials, direct labour and factory overhead applied. The factory overhead account contains postings for actual overhead costs. At the end of the month, the overhead variance is closed out to the cost of goods sold account.

Factory overhead is applied on the basis of direct labour hours. M. Evans & Sons pre-determined overhead application rate for 2012 was computed from the following data:

Total estimated factory overheads $480,000

Total estimated direct labour hours $400,000

i) purchased materials on account $50,000

ii) Incurred manufacturing wages of $106,500

iii) Issued direct materials and used direct labour in manufacturing

Direct materials Direct labor Direct labor hours

Job101 $10,000 $22,000 12,000

Job102 $8,000 $19,000 10,000

Job102 $9,000 $20,500 11,000

Job104 $15,000 $29,025 18,000

iv). Issued indirect materials to productions, $8,000

v) Charged indirect manufacturing wages to production, $15,975

vi).Depreciation expense on factory equipment used on the different jobs, $30,000

vii) Other overhead costs incurred on jobs 101 to 104 amounted to $11,275

viii) Applied factory overhead to the various jobs using the pre-determined factory overhead rate.

ix) Finished jobs 101-103 and transferred to the finished goods inventory account

x) Shipped job 101 and 102 and billed customers at a mark-up of 40percent on cost

You are required to:

a) Calculate the overhead rate for the business.

b) Calculate the total manufacturing costs for each job.

c) Using the total figures, record the preceding events in the general journal.

d) Open T-accounts for Work in Process Inventory and finished Goods Inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.

e) Prepare the adjusting entry for the manufacturing overhead, assuming the balance is allocated entirely to cost of goods sold.

f) Compute the gross profit on the units sold, after adjusting for the manufacturing overhead variance.

Please use assignment template attached.

Assignment Template

a) Calculating OAR

Overhead Absorption Rate (OAR) = Formula?
OAR =
=

b) Calculating Total Manufacturing Cost For Each Job

	Direct Materials	Direct Labour	Manufacturing Overhead Applied	Total Manufacturing Cost
Job 101	$10,000	$22,000
Job 102	8,000	19,000
Job 103	9,000	20,500
Job 104	15,000	29,025
Total

c) Journal Entries

DATE	ACCOUNTS & EXPLANATIONS	DR	CR
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)

d) Determining Ending Account Balances

WIP Inventory A/C

Bal. b/f	0	To Finished Goods
Direct Materials Used
Direct Labour Incurred
Manufacturing Overhead Applied		Bal c/d

Finished Goods Inventory A/C

Bal. b/f	0
		Bal c/d

e) Calculating Manufacturing Overhead Variances

Manufacturing Overhead A/C

Adjusting Journal Entry

f) Calculating Gross Profit

Sales Revenue
Adjusted COGS
Gross Profit