Sikar mie Corporation uses a job-order normal costing system with two direct cos
ID: 2514399 • Letter: S
Question
Sikar mie Corporation uses a job-order normal costing system with two direct cost categories (direct ls and direct labor) and one indirect cost pool. Sikarnie has provided the following information Budget for 2017 Actual results for 2017 Direct material costs Direct labor costs Indirect costs Machine hours Direct labor hours 861,000 700,000 1,496,500 133,500 95,000 $783,000 2,844,000 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 $541,100 $773,000 $231,900 machine hours 41,580 34,650 62,370 Work-in-Process (WIP) Control Finished Goods (FG) Control Cost of Goods Sold (COGS) Required (show all work): (a) Assume that Sikarnie 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 (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 2017 Assume that Sikarnie 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 (iv) 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? b. 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) Assume instead that Sikarnie 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
a)
i) Budgeted indirect cost rate = Budgeted indirect costs/machine hours
= $1496500/133500
=$11.21 per machine hour
ii) total allocated indirect cost =
direct labour cost= labour hours* rate per machine hour
=103000*11.21$ = $1154630
direct material cost=
work in progress = machine hours* rate per machine hour
=41580* 11.21$ = $466111.8
finished goods = machine hours* rate per machine hour
= 34650* 11.21$ = $388426.5
cost of goods sold = machine hours* rate per machine hour
= 62370*11.21$ = $ 699167.7
Variable Overhead= machine hours* rate per machine hour
= 138600* $11.21 = $1553706
iii) labour cost budgeted= budgeted labour hours* rate per machine hour
= 95000* $11.21 = $1064950
actual labour cost = $ 1154630
over allocation = 1154630-1064950 = $89680
indirect cost budgeted= budgeted machine hours* rate per machine hours
= 133500*$11.21 = $1496500
actual indirect cost = 1553706
over allocation = 1553706-1496500= $57206
b)
i) budgeted indirect cost = 1496500/95000 = 15.75 per labour hour
ii) total allocated indirect cost=
labour cost= actual labour hours*rate per labour hour
= 103000*15.75$ = $1622250
indirect cost= machine hours* rate per labour hour
= 138600*15.75$ = $ 2182950
WIP Control = 41580*15.75$ = $654885
FGS Control = 34650*15.75$ = $545737.5
COGS= 62370*15.75$ = $982327.5
iii) labour cost budgeted = 95000* $15.75 = $ 1496250
over allocation = 1622250-1496250 = $126000
indirect cost budgeted = 133500*15.75$ = $2102625
over allocation= 2182950- 2102625 = $80325
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