Sassafras Yacht Corporation began operations on December 1, 2016. The company us

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Sassafras Yacht Corporation began operations on December 1, 2016. The company uses normal costing as part of a job-order cost system. During December, the company purchased $95,000 of direct material, and then used $50,000 of these direct materials to start Job 450. The company charged total conversion costs of $56,000 (direct labor and overhead) to Job 450 during December As of the end of December Job 450 was not complete. There was no underapplied or overapplied overhead for December The company charges overhead to jobs using direct labor HOURS (careful!). The estimated direct labor hours for 2017 are 40,000 hours and the estimated overhead cost for 2017 is $800,000 During 2017, the following transactions occurred. There were 5 jobs that had work completed on them in 2017. Some of the data for these jobs are shown below: 1. Job 450 Job 500 Job 550 Job 600 Job 650 Direct Material Cost $5,500 $75,000 $45,000 $15,000 $7,000 Direct Labor Hours 5,000 hrs. 10,000 hrs. 15,000 hrs. 2,500 hrs 2,500 hrs The Direct Labor Rate for 2017 is $30 per hour The company purchased $280,000 of direct materials. At the end of 2017, the jobs that were not finished were Jobs 600 and 650. Job 450 consisted of 5,000 units of which 4,500 were sold in 2017 at a selling price of $250 each Job 550 consisted of 15,000 units of which 4,000 were sold in 2017 at a selling price of $200 ach. Job 500 consisted of 10,000 units, none of which were sold at the end of 2017 Other costs incurred during 2017 include the following Advertising Expense $225,000 Maintenance- Factory 75,000 Administrative Expense $450,000 Depreciation- Factory $125,000 Utilities- Factory 2. 3. 4. 5. $450,000 45,000 Indirect Labor Factory Insurance Corporate General Expenses $175,000 F.G. Warehouse Depreciation 40,000 Miscellaneous Overhead Indirect Materials $185,000 $250,000 $ 70,400 $110,000 Your Task: A. Prepare, in good form, a Schedule of Cost of Goods Manufactured for 2017 8. Add up the total costs of Jobs A, B and c. Does this total equal your Cost of Goods Manufactured from Part A? Should it Compute the underapplied or overapplied overhead for 2017. Is it under or overapplied? Assume that any underapplied or overapplied overhead is closed totally to Cost of Goods Sold at the end of 2017. Prepare, in good form, an Income Statement for 2017 Now assume that we want to allocate the underapplied or overapplied overhead to the appropriate accounts at the end of 2017. Remember you must determine how much applied overhead is in WIP and Finished Goods ending inventories as well as Cost of Goods sold Assume Finished Goods Inventory has $430,000 of applied overhead in its ending balance and you know how much applied overhead is on Jobs 600 and 650. You should be able to determine how much applied overhead will be in Cost of Goods sold at the end of 2017 Allocate the under(over) applied overhead and show how much should be closed to each account. If you prorate the under(over) applied overhead rather than charging it totally to Cost of Goods Sold, would Net Operating Income for the company increase or decrease? By how much? One way to figure this out would be to just look at the change in the adjustment to Cost of Goods Sold C. D. E.

Explanation / Answer

As per policy, only four parts of a question is allowed to answer at a time, so answering A to D here :

A) Cost of Goods Manufactured: Opening WIP 106000 RM Open bal 45000 add: Purchases 280000 Total RM available 325000 Less: RM Close 67500 RM Consumed 257500 less: Indirect RM -110000 DL (35000*30) 1050000 M O/h (35000*20) 700000 800000/40000 = $20 per DLH Manufacturing cost incurred 1897500 Cost incurred on manufacturing 2003500 Less Closing WIP -272000 (15000+7000+150000+100000) Cost of Goods Manufactured 1731500 B) Total costs of Jobs A, B and C. Job A (ie.450) = 106000 + 5500+ 5000 (30+20) = 361500 Job B (ie.500) = 75000+ 10000 * 50 = 575000 Job C (ie. 550) = 45000 + 15000 * 50 = 795000 Total costs of Job A, B & C = $1731500 Yes, total costs of Jobs A, B & C is equal to Cost of Goods Manufactured. C) Actual Manuf. Overhead incurred: RM 110000 Maint Fact 75000 Dep /fact 125000 Utilities Fact 185000 Indi lab. 450000 Fact Insur 45000 Total Actual M. O/h incurred 990000 Less: Manuf. O/h applied -700000 Under applied M O/h= 290000 D) Income Statement: Revenues 1925000 (4500*250)+(4000*200) Less: COGS 478683.3 (361500*4500/5000)+(575000*4000/15000) Gross Profit 1446317 Less: Expenses: Adver exp 225000 adminis exp 450000 Selling exp 250000 Corp General exp 175000 FG Warehouse dep 40000 Miscel overhead 70400 Total expenses 1210400 Net Operating Income 235916.7

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