Problem 7-52 Cost Flows through Accounts (LO 7-2, 3, 4) Brighton Services repair
ID: 2406120 • Letter: P
Question
Problem 7-52 Cost Flows through Accounts (LO 7-2, 3, 4)
Brighton Services repairs locomotive engines. It employs 100 full-time workers at $18 per hour. Despite operating at capacity, last year's performance was a great disappointment to the managers. In total, 10 jobs were accepted and completed, incurring the following total costs:
Of the $1,035,000 manufacturing overhead, 40 percent was variable overhead and 60 percent was fixed.
This year, Brighton Services expects to operate at the same activity level as last year, and overhead costs and the wage rate are not expected to change. For the first quarter of this year, Brighton Services completed two jobs and was beginning the third (Job 103). The costs incurred follow:
You are a consultant associated with Lodi Consultants, which Brighton Services has asked for help. Lodi's senior partner has examined Brighton Services's accounts and has decided to divide actual factory overhead by job into fixed and variable portions as follows:
Required:
a. Present in T-accounts the actual manufacturing cost flows for the three jobs in the first quarter of this year.
A table like this for Materials Inventory, Wages Payable, Variable Manufacturing Overhead, Fixed Manufacturing Overhead, Work In Process Inventory, Finished Good Inventory, Cost of Goods Sold and Under-or Over-Applied Overhead
b. Using last year's overhead costs and direct labor-hours as this year's estimate, calculate predetermined overhead rates per direct labor-hour for variable and fixed overhead. (Round your answers to 2 decimal places.)
c. Present in T-accounts the normal manufacturing cost flows for the three jobs in the first quarter of this year. Use the overhead rates derived in requirement (b). (Do not round intermediate calculations.) Same T Accounts as above needed.
d. Calculate operating profit (loss) for the first quarter of this year under actual and normal costing systems.
Direct Material 1038400.00 Direct Labor 4140000.00 Manufacturing Ovhd 1035000.00Explanation / Answer
a. Actual manufacturing cost flows for the three jobs in the first quarter of this year Materials Inventory Wages payable VMOH FMOH Total actual cost accumulated WIP Inventory Finished goods Beginning Bal 0 0 0 0 JOb 101 137500 510000 30200 104300 782000 782000 Job 102 96000 312600 27800 88500 524900 524900 Job 103 94300 197900 4900 15800 312900 312900 Ending Bal 327800 1020500 62900 208600 1619800 312900 1306900 b.Using last year's overhead costs and direct labor-hours as this year's estimate, and fixed overhead Predetermined overhead rates per direct labor-hour for variable &Fixed MOHs Total D/L hrs. OH Rate/DL hr. 1 2 1/2 VMOH Costs(40%*1035000) 414000 230000 1.8 FMOH Costs(60%*1035000) 621000 230000 2.7 Note: Total D/L hrs.= 4140000/18=230000 hrs. c. Normal manufacturing cost flows for the three jobs in the first quarter of this year. Materials Inventory Wages payable VMOH at $ 1.8/hr. FMOH at $ 2.7/hr. Total actual cost accumulated WIP Inventory Finished goods Beginning Bal 0 0 0 0 JOb 101 137500 510000 50999 76499 774999 774999 Job 102 96000 312600 31261 46891 486752 486752 Job 103 94300 197900 19789 29684 341673 341673 Ending Bal 327800 1020500 102049 153074 1603423 341673 1261750 Direct labor hours workings: JOb Direct Labor ($ ) D/L hrs. at $ 18/hr. 101 510000 28333 102 312600 17367 103 197900 10994 ACTUAL NORMAL Under/(over applied OH) Net OH Under-Over applied MOH VMOH FMOH VMOH at $ 1.8/hr. FMOH at $ 2.7/hr. VMOH FMOH Beginning Bal 0 0 0 0 JOb 101 30200 104300 50999 76499 -20799 27801 7001 Job 102 27800 88500 31261 46891 -3461 41609 38149 Job 103 4900 15800 19789 29684 -14889 -13884 -28773 Ending Bal 62900 208600 102049 153074 -39149 55526 16377 Total 271500 255123 16377 d. Actual Normal JOb 101 782000 774999 Job 102 524900 486752 Mktg. costs 100000 100000 Add: Net Under-applied MOH 16377 COGS 1423277 1361750 Sale value of 2 jobs (856000+556000) 1412000 1412000 Profit/(Loss) -11277 50250