31.07.2022 - 11:08

FiberCom, Inc., a manufacturer of fiber optic communications equipment, uses a job-order costing sys-tem. Since the production process is heavily automated, manufacturing overhead is applied on the ba

Question:

FiberCom, Inc., a manufacturer of fiber optic communications equipment, uses a job-order costing sys-tem. 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

Work-in-Process December Activity

Job No. Balance November 30 Direct Material Direct Labor Machine Hours

T11-007 …………………$ 87,000 $ 1,500 ……………………..$ 4,500 ……………………. 300

N11-013 ……………….. 55,000 4,000 …………………….. 12,000 …………………….1,000

N11-015 ……………….. -0- 25,600 …………………….. 26,700 …………………….1,400

D12-002 ……………….. -0- 37,900 …………………….. 20,000 …………………….2,500

D12-003 ……………….. -0- 26,000 …………………….. 16,800 ……………………. 800

Total …………………..$142,000 $95,000 ……………………..$80,000 …………………….6,000

Operating Activity Activity through November 30 December Activity

Actual manufacturing overhead incurred:

Indirect material ……………………………… $ 125,000 …………………….. $ 9,000

Indirect labor ………………………………….. 345,000 …………………….. 30,000

Utilities …………………………………………… 245,000 …………………….. 22,000

Depreciation …………………………………… 385,000 …………………….. 35,000

Total overhead ……………………………….. $1,100,000 …………………….. $96,000

Other data: Raw-material purchases* …………………. $ 965,000 …………………….. $98,000

Direct-labor costs ……………………………. $ 845,000 ……………………. .$80,000

Machine hours ………………………………… 73,000 ……………………. .6,000

Account Balances at Beginning of Year January 1 Raw-material inventory* ………………………. $105,000

Work-in-process inventory ……………………. 60,000

Finished-goods inventory …………………….. 125,000

  • 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..

Required:

1. Explain why manufacturers use a predetermined overhead rate to apply manufacturing overhead to their jobs.

2. How much manufacturing overhead would FiberCom have applied to jobs through November 30 of the year just completed?

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

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

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

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

Answers (1)
  • Delma
    April 9, 2023 в 22:05
    1. Manufacturers use a predetermined overhead rate to apply manufacturing overhead to their jobs because it allows for more accurate product costing. By assigning overhead costs based on estimated activity levels and costs, manufacturers can better determine the cost of producing each product, which is important for pricing decisions and profitability analysis. 2. FiberCom would have applied $1,095,000 in manufacturing overhead to jobs through November 30 of the year just completed. This can be calculated by multiplying the predetermined overhead rate of $15 per machine hour by the actual machine hours used through November 30 (73,000 machine hours). 3. FiberCom would have applied $96,000 in manufacturing overhead to jobs during December of the year just completed. This is based on the actual manufacturing overhead costs incurred during December, as presented in the table. 4. To determine the amount by which manufacturing overhead is overapplied or underapplied, we need to compare the total manufacturing overhead applied to jobs ($1,191,000 = $1,095,000 + $96,000) to the actual manufacturing overhead costs incurred ($1,100,000). This gives us an overapplied amount of $91,000 ($1,191,000 - $1,100,000). 5. To determine the balance in the Finished-Goods Inventory account on December 31 of the year just completed, we need to add the cost of the completed jobs that have not yet been turned over to customers ($87,000 for T11-007 and $25,600 for N11-015) to the balance in the Finished-Goods Inventory account at the beginning of the year ($125,000). This gives us a total balance of $237,600. 6. To prepare a Schedule of Cost of Goods Manufactured, we need to calculate the total manufacturing costs incurred during the year. This can be done using the following formula: Beginning Raw Material Inventory + Raw Material Purchases - Ending Raw Material Inventory + Direct Labor + Manufacturing Overhead Applied = Total Manufacturing Costs Plugging in the numbers from the table, we get: $105,000 (beginning Raw Material Inventory) + $965,000 (Raw Material Purchases) - $85,000 (ending Raw Material Inventory) + $845,000 (Direct Labor) + $1,191,000 (Manufacturing Overhead Applied) = $2,121,000 To determine the cost of goods manufactured, we need to subtract the beginning balance of Work-in-Process inventory ($60,000) from the total manufacturing costs and then add the ending balance of Work-in-Process inventory ($142,000): Total Manufacturing Costs - Beginning Work-in-Process Inventory + Ending Work-in-Process Inventory = Cost of Goods Manufactured $2,121,000 - $60,000 + $142,000 = $2,203,000 Therefore, the Cost of Goods Manufactured for FiberCom, Inc. for the year just completed is $2,203,000.
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