ACC203: Managerial Accounting

Goldie Inc. manufactures premium quality industrial components. The company adopts job order costing and uses normal costing with activity-based costing to allocate its manufacturing overhead. The annual total overhead costs for the year is broken down into activity cost pools and their respective cost drivers for each cost pool are tabled below.

Overhead Cost Pool	Budgeted Cost ($)	Cost Driver	Budgeted Activity
Setup Costs	60,000	Number of Setups	240
Purchasing Costs	40,000	Number of Purchases	2,000
Maintenance Costs	120,000	Maintenance Hours	4,000
Customer Order Processing Costs	24,000	Customer Orders	600
Electricity Charges	100,000	Kilowatt-Hours	2,500

The following data relates to the current job completed for CBC Ltd, a first time customer.

Direct materials	$30,000
Direct labour rate	$20 per DL hour
Number of units completed	50,000
Direct labour hours per unit	0.5
Number of setups	8
Number of purchases	40
Maintenance hours	400
Kilowatt-hours	300

The companys budgeted direct labour hours for the period is 500,000 direct labour hours. Goldie also manufactures other components in its factory. It prices its products based on full product cost plus a 25% mark up.

Required:

1. Using normal costing method, compute the price that Goldie should bill CBC Ltd for the current job (rounded to nearest dollar). (8 marks)
2. Discuss the suitability of using activity-based costing to allocate overheads for Goldie (you should compare the suitability of other allocation methods in your answer). (10 marks)
3. Maintenance costs is negotiated yearly. The annual maintenance cost is expected to increase by 30% next year. All other overhead costs are expected to remain the same as this year. CBC Ltd is happy with the current job and wishes to engage Goldie to produce the same components next year. Based on the current pricing policy, how much should Goldie quote CBC for the job next year? State the impact on profits if the price is not adjusted from this year (assume all other aspects of the job are similar to the one done this year). (5 marks)

4. Assuming that the under applied overhead variance for this job is $21,500, prepare a journal entry (narrations are not required) to record the closing of the under application of overhead. (2 marks)