Question

Question 1 Sandar Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year: Computer-hours 90,000 Fixed manufacturing overhead cost $1,278,000 Variable manufacturing overhead per computer-hour $5.30 During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company's warehouse. The company's cost records revealed the following actual cost and operating data for the year ended 31 December 2019: 85,000 $7.890.000 $1,722.000 Computer-hours Purchase of raw materials Direct labor cost Manufacturing overhead costs: Insurance, factory ...... Depreciation of equipment .. Indirect material.... Indirect labor.. ....... Property taxes ......... Maintenance............ Rent, building ......... $ 88,000 170,000 12,000 327,000 85,000 630,000 360,000 ........ ........... Raw Materials Work in Process Finished Goods Beginning $1,770,000 960,000 1.110,000 Ending $900,000 870,000 1,860,000

Answer 1

Ans. A	Predetermined overhead rate = Total Estimated overhead cost / Estimated computer hours
	$1,755,000 / 90,000
	$19.50	per computer - hour
	*Calculations:
	*Variable manufacturing overhead = Variable manufacturing overhead per computer hour * Budgted computer hours
	$5.30 * 90,000
	$477,000
	*Total estimated overhead cost = Variable manufacturing overhead + Fixed manufacturing overhead
	$477,000 + 1,278,000
	$1,755,000
Ans. B	First, we need to calculate the overhead applied, then we will be able
	to calculate the over or under applied overhead cost.
	Overhead applied = Actual computer hours * Predetermined overhead rate
	85,000 * $19.50
	$1,657,500
	Now, we need to find out the value of actual manufacturing overhead cost.
	Particulars	Amount
	Insurance, factory	$88,000
	Depreciation of equipment	$170,000
	Indirect materials	$12,000
	Indirect labor	$327,000
	Property taxes	$85,000
	Maintenance	$630,000
	Rent, building	$360,000
	Actual manufacturing overhead (Total)	$1,672,000
	Under applied overhead = Actual overhead - Applied overhead
	$1,672,000 - $1,657,500
	$14,500
	If the applied overhead is less than the Actual overhead
	it means that the overhead is under applied.
Ans. C	SANDAR   COMPANY
	Schedule of Cost of goods manufactured
	Particulars	Amount	Amount
	Beginning Work in process inventory		$960,000
	Manufacturing Costs:
	Direct materials:
	Beginning raw materials inventory	$1,770,000
	Add: Purchase of direct materials	$7,890,000
	Raw materials available	$9,660,000
	Less: Ending raw materials inventory	-$900,000
	Direct materials used		$8,760,000
	Direct labor		$1,722,000
	Manufacturing overhead applied		$1,657,500
	Total manufacturing costs		$12,139,500
	Total cost of work in process		$13,099,500
	Less: Ending Work in process inventory		-$870,000
	Cost of goods manufactured		$12,229,500
Ans. D	The following journal entry is made to record Under applied overhead:
	Particulars	Debit	Credit
	Cost of goods sold	$14,500
	Manufacturing overhead		$14,500
	(under applied overhead closed to cost of goods sold)
	SANDAR   COMPANY
	Schedule of Cost of Goods Sold
	Particulars	Amount
	Cost of goods manufactured	$12,229,500
	Add: Beginning finished goods inventory	$1,110,000
	Cost of goods available for sale	$13,339,500
	Less: Ending finished goods inventory	-$1,860,000
	Unadjusted Cost of goods sold	$11,479,500
	Add: Underapplied overhead	$14,500
	Adjusted cost of goods sold	$11,494,000
Ans. E	SANDAR   COMPANY
	Income Statement
	For Year Ended December 31, 2019
	Particulars	Amount	Amount
	Sales		$18,100,000
	Less: Cost of goods sold		-$11,494,000
	Gross margin		$6,606,000
	Less: Operating expenses:
	Selling expenses	$1,070,000
	Administrative expenses	$720,000
	Total operating expenses		$1,790,000
	Operating Income		$4,816,000