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4.26 The following information relates to Amazing Creations Pty Ltd for the year just ended: Budgeted direct labour cost 84 000 hours @ $22 per

4.26 The following information relates to Amazing Creations Pty Ltd for the year just ended:

Budgeted direct labour cost 84 000 hours @ $22 per hour
Actual direct labour cost 80 000 hours @ $25 per hour
Budgeted manufacturing overhead $1 050 000
Actual manufacturing overhead:
Depreciation $ 250 000
Property taxes 21 000
Indirect labour 85 000
Supervisory salaries 208 000
Electricity 47 000
Insurance 26 000
Factory rent 291 000
Indirect material (see data below) 64 000
Indirect material:
Beginning inventory, 1 January $60 000
Purchases 84 000
Ending inventory, 31 December 80 000

Required:

  1. Calculate the firm's predetermined overhead rate, which was based on direct labour hours.
  2. Calculate the overapplied or underapplied overhead for the year.
  3. What caused the overapplied or underapplied overhead?

5.33 Rigby Limited's machining department had 20 000 units in work in process on 1 March.

These units were 40 per cent complete with respect to conversion. Direct materials are added at the beginning of the production process, while conversion costs are incurred uniformly throughout the process. An additional 40 000 units were started during March, and 10 000 units were in work in process on 31 March. The units in work in process on 31 March were 20 per cent complete with respect to conversion.

Costs incurred in the machining department for March were as follows:

Work in process 1 March Costs incurred during March Total
Direct material $78 000 $252 000 $330 000
Conversion 23 200 132 800 156 000
$101 200 $384 800 $486 000

Required:

  1. Using an example, explain the concept of equivalent units. Explain why an understanding of equivalent units is necessary to undertake process costing.
  2. Using the weighted average method of process costing, calculate the cost of goods completed and transferred out during March and the cost of work in process at 31 March. Show all workings.

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