Opticom, Inc. a manufacturer of fiber optic communications equipment, uses a job

Question

Opticom, Inc. a manufacturer of fiber optic communications equipment, uses a job-order costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budgeted manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours (the company’s estimated practical capacity). Operations for the year have been completed, and all of the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from Work in Process to Finished Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and for the month of December are presented in the following table. Jobs T11-007, N11-013, and N11-015 were completed during December. All completed jobs except Job N11-013 had been turned over to customers by the close of business on December 31.

*Raw material purchases and raw-material inventory consist of both direct and indirect materials. The balance of the Raw-Material Inventory account as of December 31 of the year just completed is $85,000.

1) How much manufacturing overhead would Opticom have applied to jobs through November 30 of the year just completed?

2) How much manufacturing overhead would have been applied to jobs during December of the year just completed?

3) Determine the amount by which manufacturing overhead is overapplied or underapplied as of December 31 of the year just completed.

4) Determine the balance in the Finished-Goods Inventory account on December 31 of the year just completed.

5) Prepare a Schedule of Cost of Goods Manufactured for Opticom, Inc. for the year just completed. (Hint: In computing the cost of direct material used, remember that Opticom includes both direct and indirect material in its Raw-Material Inventory account.)

Opticom, Inc. a manufacturer of fiber optic communications equipment, uses a job-order costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budgeted manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours (the company’s estimated practical capacity). Operations for the year have been completed, and all of the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from Work in Process to Finished Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and for the month of December are presented in the following table. Jobs T11-007, N11-013, and N11-015 were completed during December. All completed jobs except Job N11-013 had been turned over to customers by the close of business on December 31.

Explanation / Answer

1 Manufacturing overhead applied =Machine hours*Current annual rate=72000*15=$ 1080000 2 Manufacturing overhead applied =Machine hours*Current annual rate=6000*15=$ 90000 3 Total Manufacturing overhead applied=1080000+90000=1170000 Total actual manufacturing overhead=1100000+96000=1196000 Under-applied overhead=1196000-1170000=$26000 4 Balance in finshed goods inventory will be cost of Jobs completed but not sold Here,Job N11-013 completed but not sold Hence, Balance in finished goods inventory=Cost of Job N11-013=55000+4000+12000+(1000*15)=86000 5 Schedule of cost of goods manufactured: Direct materials used: Beginning raw materials inventory 105200 Add: Cost of raw materials purchased (965100+98100) 1063200 Total raw materials available 1168400 Less:Ending raw materials inventory 85000 Total raw materials used 1083400 Direct labor (845000+80000) 925000 Manufacturing overhead Indirect materials (125000+9000) 134000 Indirect labor (345000+30000) 375000 Utilities (245000+22000) 267000 Depreciation (385000+35000) 420000 1196000 Total manufacturing cost 3204400 Add: Beginning work-in-process inventory 60100 3264500 Less: Ending work in process inventory 150200 (Note:1) Cost of goods manufactured 3114300

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