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The Clash Company uses job-order costing with a predetermined overhead rate. The company had $15,000 in Materials Control at the beginning of 2017.
The Clash Company uses job-order costing with a predetermined overhead rate. The company had $15,000 in Materials Control at the beginning of 2017. The company includes BOTH direct and indirect materials in the Materials Control account. At the beginning of 2017, the company had one job in Work in Process. This was Job 111, which had $8,000 of product costs charged to the job during 2016. The company also had one job in Finished Goods. This was Job 90, which consisted of 50 units with a production cost of $400 for each unit. For 2017, the company will charge overhead to jobs using direct labor cost. The estimated direct labor cost for 2017 was $72,000, and the estimated overhead cost for 2017 was $60,000. During 2017, the following direct costs were charged to the only 4 jobs that the company worked on:
Job 111 Job 222 Job 333_ Job 444
Direct materials $16,000 $11,000 $13,000 $2,000
Direct labor $21,250 $15,000 $20,000 $6,250
Units on completed job 1,000 units 400 units 2,000 units Unfinished
The company purchased $57,000 of total materials during 2017. During 2017, the company finished Jobs 111, 222, and 333. Job 444 was NOT completed during 2017. The actual overhead incurred during 2017 was $58,750. Of this amount, $19,000 was for indirect materials used. During 2017, the company sold all 50 units from Job 90 for $700 each, all 1,000 units from Job 111 for $100 each, 300 units from Job 222 for $150 each, and 1,500 units from Job 333 for $50 each. The total period expenses for 2017 were $100,000.
1. Compute the underallocated or overallocated overhead for 2017.
2. Using the total balances in the appropriate accounts at the end of 2017, allocate (prorate) the under(over) allocated overhead to the appropriate accounts. When prorating, round your percentages to the nearest per cent, if needed (for example, round .147 to .15). Show how much of the correction should be allocated to each account. After you have made your computations, compute the ADJUSTED amount of overhead in Work in Process Control.
3. Re-do number 2, but now use the most theoretically correct method to allocate (prorate) the under(over)allocated overhead to the appropriate accounts. Again round to the nearest per cent, show the amount of correction to each account, and compute the ADJUSTED amount of overhead in Work in Process Control.
4. Using actual costing based on a time period of one year, compute the actual overhead rate for 2017. Then compute the total actual overhead that would have been charged to Job 20 during 2017 using this rate.
A. Does the amount of actual overhead you just computed for Job 20 equal the adjusted overhead balance that you computed for Work in Process in question 2? Should it be equal?
B. Does the amount of actual overhead you just computed for Job 20 equal the adjusted overhead balance that you computed for Work in Process in question 3? Should it be equal?
5. Prepare, in good form, a Schedule of Cost of Goods Manufactured for 2017 for the Cream Company. You do not need a heading on your schedule, but it should otherwise be in good form.
6. Based on your proration in question 3, prepare, in good form, an income statement for 2017 for the Cream Company. You do not need a heading on your income statement, but it should otherwise be in good form.
