Sikarnie Corporation uses a job-order normal costing system with two direct cost
ID: 2512345 • Letter: S
Question
Sikarnie Corporation uses a job-order normal costing system with two direct cost categories (direct materials and direct labor) and one indirect cost pool. Sikarnie has provided the following information: Direct material costs Direct labor costs Indirect costs Machine hours Budget for 2017 Actual results for 2017 $783,000 2,844,000 861,000 2,700,000 133,500 95,000 1,586,300 138,600 103,000 In addition, data on account balances at the end of 2017 and the amount of actual machine hours within each account at the end of 2017 is as follows (all data provided is before proration): 2017 Year-end Actual balance machine hours 41,580 34,650 62,370 Work-in-Process (WIP) Control Finished Goods (FG) Control $541,100 773,000 $231,900 Cost of Goods Sold (COGS) Required (show all work): (a) Assume that Sikanie allocates indirect costs using machine hours. (i) Calculate the budgeted indirect cost rate for the year 2017 (ii) Calculate the total allocated indirect costs for the year 2017. (iii) For the year 2017, are the indirect costs under- or overallocated? Calculate the amount of under- or overallocated indirect costs under normal costing for the year 2017 (iv) Assume that Sikanie disposes of the under- or overallocated indirect costs for 2017 by proration based on: a. the ending balances (before proration) in WIP Control, FG Control, and COGS. Calculate the new ending balances in WIP Control, FG Control, and COGS after proration of the under-or overallocated indirect costs for 2017 the allocated MOH (before proration) in the ending balances of WIP Control, FG Control, and COGS. Calculate the new ending balances in WIP Control, FG Control, and COGS after proration of the under- or overallocated indirect costs for 2017 b. Write the adjusting journal entry to dispose of the under- or overallocated indirect costs for 2017 by proration based on: a. the ending balances (before proration) in WIP Control, FG Control, and COGS. What is (v) the effect of this journal entry on the 2017 gross margin? the allocated MOH (before proration) in the ending balances of WIP Control, FG Control, and COGS. What is the effect of this journal entry on the 2017 gross margin? b. (b) Assume instead that Sikamie allocates indirect costs using direct labor hours. (i) Calculate the budgeted indirect cost rate for the year 2017 (ii) Calculate the total allocated indirect costs for the year 2017. (ii) For the year 2017, are the indirect costs under- or overallocated? Calculate the amount of under-or overallocated indirect costs under normal costing for the year 2017Explanation / Answer
Problem 1
Solution:
Part - a(i) – Budgeted Indirect Cost Rate for 2017
Budgeted Indirect Cost Rate = Budgeted Total Indirect Cost / Allocation Base i.e. Total Budgeted Machine Hours
= $1,496,500 / 133,500 MHs
= $11.209738 per Machine hour
Part a(ii) – Total Allocated Indirect Cost for Year 2017
Total Allocated Indirect Cost for Year 2017 = Actual Machine Hours 138,600 * Budgeted Indirect Cost Rate $11.209738
= $1,553,670
Part a(iii) – Over or under indirect cost
Allocated Indirect Cost = $1,553,670
Budgeted Indirect Cost = $1,496,500
Here, Allocated Indirect Cost is higher than budgeted indirect cost, it means the indirect costs are OVER Applied by $57,170 (1553,670 – 1496,500)
Part a(iv)-a – Disposition of Over or under allocated indirect cost based on Ending Inventory Balance
2017 Year end balance (before proportion)
Proportion Rate (Ending Inventory / Sum of Ending Inventory * 100)
Over Allocated Indirect Cost
Proposition of Over Allocated Indirect Cost
2017 Year end balance (After proportion)
(A)
(B)
(O)
(P = B*O)
(A - P)
Work In Process
$541,100
35.00%
$57,170
$20,009.50
$521,090.50
FG Control
$773,000
50.00%
$57,170
$28,585.00
$744,415.00
COGS
$231,900
15.00%
$57,170
$8,575.50
$223,324.50
Total
$1,546,000
$1,488,830.00
Part a(iv-a)-- Disposition of Over or under allocated indirect cost based on Machine Hours Used
2017 Year end balance (before proportion)
Machine Hours
Proportion Rate (Machine Hours used for individual Inventory / Total Machine HOurs * 100)
Over Allocated Indirect Cost
Proposition of Over Allocated Indirect Cost
2017 Year end balance (After proportion)
(A)
(M)
(B)
(O)
(P = B*O)
(A - P)
Work In Process
$541,100
41580
30.00%
$57,170
$17,151.00
$523,949.00
FG Control
$773,000
34650
25.00%
$57,170
$14,292.50
$758,707.50
COGS
$231,900
62370
45.00%
$57,170
$25,726.50
$206,173.50
Total
$1,546,000
138600
$1,488,830.00
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
2017 Year end balance (before proportion)
Proportion Rate (Ending Inventory / Sum of Ending Inventory * 100)
Over Allocated Indirect Cost
Proposition of Over Allocated Indirect Cost
2017 Year end balance (After proportion)
(A)
(B)
(O)
(P = B*O)
(A - P)
Work In Process
$541,100
35.00%
$57,170
$20,009.50
$521,090.50
FG Control
$773,000
50.00%
$57,170
$28,585.00
$744,415.00
COGS
$231,900
15.00%
$57,170
$8,575.50
$223,324.50
Total
$1,546,000
$1,488,830.00
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