Accounting Assignment

Assignment 2 - Internal

Due Date:      Monday 20 August, 2012

Weight:          15%

Length:          5 Questions

Important Note: Please clarify with your unit coordinator, if any aspect of the assignment questions is vague/unclear/confusing, well before you submit your assignment.

Question 1: (8 Marks)

Boone Company has the following balances as of December 31, 2011.

Materials inventory

$15,000

Work in process inventory

$36,200

Finished goods inventory

$50,100

Manufacturing overhead debit balance (after allocation)

$3,500

Cost of goods sold

$74,500

Additional information is as follows:

Cost of materials purchased during 2011

$41,000

Cost of direct materials requisitioned during 2011

$ 47,000

Cost of indirect materials requisitioned during 2011

$ 8,000

Cost of goods manufactured during 2011

$105,000

Manufacturing overhead allocated (120% of direct labor)

$51,000

Determine each of the following:

a) January 1, 2011, materials inventory

b) January 1, 2011, work in process inventory

c) January 1, 2011, finished goods inventory

d) Actual manufacturing overhead incurred

Answer Question 1:

Material Consumed = $47000/-

Material Purchased = $41000/-

Excess Material Used= 47000-41000 = $6000/-

Closing Material Inventory = $15000

January 1, 2011 Material Inventory = 15000+6000 = $21000/-

Goods Manufactured = material consumed + cost of indirect material + manufacturing overhead allocated - cost of goods manufactured

Goods Manufactured = 47000 + 8000 + 51000 - 105,000 = $1000/-

Opening WIP = closing WIP + goods manufactured

Opening WIP = 36200+1000 = $37200/-

Finished goods inventory = cost of goods sold + finished goods inventory - cost of goods manufactured

Finished goods inventory = 74,500+50,100-105,000 = $19600/-

Actual Manufacturing overhead incurred = M.Overhead allocated - Overhead debited

Actual Manufacturing overhead incurred = 51000-3500 = $47500/-

Question 2: (9 Marks)

Wright Brothers is debating the use of direct labor cost or direct labor hours as the cost allocation base for allocating manufacturing overhead. The following information is available for the year ended December 31, 2011:

Estimated direct labor cost

$437,500

Actual direct labor cost

$447,000

Estimated manufacturing overhead costs

$350,000

Actual manufacturing overhead costs

$338,000

Estimated direct labor hours

25,000

Actual direct labor hours

24,200

Determine the following:

a) Predetermined manufacturing overhead rate using direct labor cost as the allocation base

b) Predetermined manufacturing overhead rate using direct labor hours as the allocation base

c) Allocated manufacturing overhead based on direct labor cost

d) Allocated manufacturing overhead based on direct labor hours

e) Was manufacturing overhead under- or over-applied

f) Using direct labor hours as the allocation base, prepare the journal entry to close out manufacturing overhead.

Answers Question 2

Predetermined manufacturing overhead = Estimated overhead costs / estimated direct labour cost

Predetermined manufacturing overhead = 350,000 / 437,500 = $0.8/direct hour

Predetermined manufacturing overhead = Estimated overhead costs / estimated direct labour hours

Predetermined manufacturing overhead = 350,000 / 25000 = $14/ hr

Allocated manufacturing overhead = predetermined manufacturing overhead per direct labour cost* direct labour cost

Allocated manufacturing overhead ...