Redmar, Inc. manufactures custom campers. They use a costing system with one rat
ID: 2403688 • Letter: R
Question
Redmar, Inc. manufactures custom campers. They use a costing system with one rate of manufacturing overhead. In this system, they apply manufacturing overhead based on the direct labor hours. Below are the estimated costs (both period and product), estimated number of campers to be produced this year, and estimated direct labor hours per camper for the year-ended 2018.
Cost Amount
Indirect Production Labor $ 75,000
Factory Insurance $ 15,400
Factory Utilities $ 30,800
Marketing expense $ 57,700
Production Supervisor $ 62,300
Salaries of salespeople $ 122,500
Direct Labor $ 262,000
Depreciation on sales office $ 25,000
Direct materials $ 225,000
Factory Rent $ 69,800
Depreciation of factory $ 124,300
Estimated campers to be manufactured in 2018 = 400
Estimated direct labor hours per camper = 25
Assume Redmar began the year with zero balances in raw materials, work in process, and finished goods inventory. Throughout the course of the year they had the following transactions:
1. They purchased $250,000 in raw materials.
2. They requisitioned $ 190,000 of direct materials and $30,000 of indirect materials for the production of 500 campers.
3. Throughout the year, they started 500 campers and completed 480 campers. The 500 campers required 12,110 hours of direct labor paid at $20 / hour. Manufacturing overhead was applied to 500 campers. The completed campers were transferred into Finished Goods.
4. They incurred actual manufacturing overhead costs of $ 460,000.
5. Of the 480 campers completed, they sold 460 for $3,000 / camper.
6. They incurred actual selling and administrative costs of $75,000.
Please answer the following question in order:
A. What is the predetermined manufacturing overhead rate for 2018?
B. What is the actual cost per camper being transferred from work in process to finished goods?
C. Was manufacturing overhead underapplied or overapplied? By how much?
D. What is the net income for 2018 assuming under/overapplied manufacturing overhead was closed into Cost of Goods Sold?
E. What is the ending balance (12/31/18) for all three inventory accounts?
Explanation / Answer
Solution A:
predetermined manufacturing overhead rate for 2018 = Estimated manufacturing overhead / Estimated direct labor hours
Estimated manufacturing overhead = Indirect production labor + Factory insurance + Factory utilities + Prodcution supervisor + Factory rent + Depreciation on factory
= $75,000 + $15,400 + $30,800 + $62,300 + $69,800 + $124,300 = $377,600
Estimated direct labor hours = 400 * 25 = 10000 hours
Predetermined overhead rate = $377,600 / 10000 = $37.76 per labor hours
Solution B:
Direct material cost = $190,000
Actual direct labor cost = 12110 * $20 = $242,200
Manufacturing overhead applied = 12110 * $37.76 = $457,274
Total production cost of 500 camper = $190,000 + $242,200 + $457,274 = $889,474
Cost per camper transferred from WIP to finished goods = $889,474 / 500 = $1,778.95
Solution C:
Manufacturing overhead applied = $457,274
Actual manufacturing overhead = $460,000
Underapplied overhead = $460,000 - $457,274 = $2,726
Solution D:
Solution E:
Ending balance of raw material inventroy = $250,000 - $190,000 - $30,000 = $30,000
Work In process = Cost incurred - Cost of goods completed
= $889,474 - (480 * $1778.95) = $35578
Finished goods = Cost of goods manufactured - Cost of goods sold = (480 * $1,778.95) - (460*1778.95) = $35,579
Computation of net income Particulars Amount Sales revenue (460*$3000) $1,380,000.00 Cost of goods sold (460*$1,778.95 + $2,726) $821,043.00 Gross Profit $558,957.00 selling and administrative cost $75,000.00 Net Income $483,957.00Related Questions
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