ACC203: Perfect Living Pte Ltd manufactures all types of custom-made furniture It uses a job-costing system: Managerial Accounting Assignment, SUSS, Singapore

Perfect Living Pte Ltd manufactures all types of custom-made furniture. It uses a job-costing system and applies manufacturing overhead on the basis of machine hours. The company’s manufacturing overhead budget for the year totalled $2,400,000. It has a maximum capacity of 320,000 machine hours. However, it is budgeted to be able to use 75% of this capacity during this period.

On 31 July, Perfect Living Pte Ltd has the following balances:

Work in process inventory
• Job number 422 $18,000
• Job number 423 $8,620
Raw materials inventory $13,360
Finished goods inventory
• Job number 421 $23,000

In August, the following occurred:

(i) Raw materials purchased on credit $4,840
(ii) Raw materials requisitions
• Job number 422 $1,020
• Job number 423 $600
• Job number 424 $2,480
• Indirect materials (used in production) $600

(iii) Machine hours, direct labour hours and wages for factory employees

Job number Machine hours Labour hours Wages
422 2,400 2,320 $24,480
423 880 720 $8,640
424 3,900 2,860 $40,100
Indirect labour 600 $5,880

(iv) Other overhead incurred:

• Depreciation – machineries $4,000
• Depreciation – delivery vans $400
• Salaries – production $10,000
• Salaries – sales and administration $7,000
• Other factory costs $15,600
• Other selling and administration costs $9,600

(v) Spoilage & reworked costs

• Job number 422 Normal spoilage with estimated disposal selling price of
$320 was incurred.

• Job number 423 Normal spoilage amounting to $70 and abnormal spoilage of $30 were incurred.
• Job number 424 Rework cost of $52 was incurred.

(vi) Job number 422 and Job number 423 were completed during the month.

(vii) Job number 421 was sold for cash at a mark-up of 30% on cost while Job number 422 was sold on credit at a price that allowed the company to earn a gross profit margin of 20%.

Required:

(a) Compute the pre-determined overhead rate.

(b) Calculate the following:

(i) Raw materials inventory as of 31 August.

(ii) Work in process as of 31 August.
(iii) Finished goods inventory as of 31 August.
(iv) Selling price for Job number 421 and Job number 422.

(c) Prepare the necessary journal entries to describe and summarise the transactions for August. Show each job separately for the work in process inventory accounts only. Narrations can be ignored.

(d) Determine the over-applied or under-applied overhead for August.

(e) Explain how the over-applied or under-applied overhead should be treated.

(f) Provide the necessary journal entries to close off the balance in the overhead control account assuming:

(i) The overhead variances are not significant.

(ii) The overhead variances are significant.