Problem 4-32 (Part Level Submission) Sheridan Wings, Inc. manufactures airplanes

Question

Problem 4-32 (Part Level Submission) Sheridan Wings, Inc. manufactures airplanes for use in stunt shows. Sheridan’s factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible. Since each plane has different features (such as its shape, weight, and color), Sheridan uses a job order costing system to accumulate product costs. At the end of 2016, Sheridan’s accountants developed the following expectations for 2017 based on the marketing department’s sales forecast: Budgeted overhead cost $1,121,000 Estimated machine hours 55,000 Estimated direct labor hours 11,000 Estimated direct materials cost $1,520,000 Sheridan’s inventory count, completed on December 31, 2016, revealed the following ending inventory balances: Raw Materials Inventory $250,000 Work in Process Inventory $627,000 Finished Goods Inventory $3,070,000 The company’s 2017 payroll data revealed the following actual payroll costs for the year: Job Title Number Employed Wage Rate per Hour Annual Salary per Employee Total Hours Worked per Employee President and CEO 1 $223,000 Vice president and CFO 1 $178,000 Factory manager 1 $40,900 Assistant factory manager 1 $32,500 Machine operator 5 $14.5 2,250 Security guard, factory 2 $20,800 Forklift operator 2 $7.5 2,000 Corporate secretary 1 $36,100 Janitor, factory 2 $6 2,150 The following information was taken from Sheridan’s Schedule of Plant Assets. All assets are depreciated using the straight-line method. Plant Asset Purchase Price Salvage Value Useful Life Factory building $4,000,000 $150,000 20 Years Administrative office $650,000 $125,000 30 Years Factory equipment $2,000,000 $20,000 12 Years Other miscellaneous costs for 2017 all paid in cash included: Cost Amount Factory insurance (fully expired) $12,500 Administrative office utilities $5,200 Factory utilities $32,100 Office supplies (fully consumed) $4,700 Additional information about Sheridan’s operations in 2017 includes the following: • Raw materials purchases for the year amounted to $1,950,000. All materials were purchased on account. • The company used $1,860,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials. • Sheridan applied overhead to Work in Process Inventory based on direct materials cost. • Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory. • Sheridan uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000. All sales are made on account. (Note: This transaction requires two journal entries.)

What was Sheridan’s predetermined overhead rate in 2017?

Explanation / Answer

Predetermine overhead rate = Budgeted overhead*100/Budgeted ddirect material

= 1121000*100/1520000

Predetermine overhead rate = 73.75% of direct material cost

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