Archer joined Coleman Enterprises as controller in October 2016. Archer is eager to impress his newemployer, and he knows that in 2017, Coleman's upper management is under pressure to show a profit in a challenging competitive environment because they are hoping to be acquired by a large private equity firm sometime in 2018.

At the end of 2016, Archer decides to adjust the manufacturing overhead rate to 150% of direct labor cost. He explains to the company presidentthat, because overhead was underallocated in 2016, this adjustment is necessary. Cost information for 2017 follows:

Direct materials control, 1/1/2017 27,000

Direct materials purchased, 2017 680,000

Direct materials added to production, 2017 580,000

Work in process control, 1/1/2017 260,000

Direct manufacturing labor, 2017 958,000

Cost of goods manufactured, 2017 2,900,330

Finished goods control, 1/1/2017 180,000

Finished goods control, 12/31/2017 235,635

Manufacturing overhead costs, 2017 1,350,000

Coleman's revenue for 2017 was $5,733,000, and thecompany's selling and administrative expenses were $2,966,000.

Requirements:

1.Insert the given information in theT-accounts provided(listed at bottom of question). Calculate the following amounts to complete theT-accounts:

a.Direct materialscontrol, 12/31/2017

b.Manufacturing overheadallocated, 2017

c.Cost of goodssold, 2017

2.Calculate the amount ofunder- or overallocated manufacturing overhead.

3.Calculate Coleman's net operating income under thefollowing:

a.Under- or overallocated manufacturing overhead is written off to cost of goods sold.

b.Under- or overallocated manufacturing overhead is prorated based on the ending balances in work inprocess, finishedgoods, and cost of goods sold.

4.Archer chooses option 3aabove, stating that the amount is immaterial. Comment on the ethical implications of his choice. Do you think that there were any ethical issues when he established the manufacturing overhead rate for 2017 back in late 2016? Refer to the IMA Statement of Ethical Professional Practice.

Additional information:

Coleman Enterprises manufactures and installs home greenhouses. The company uses anormal-costing system with twodirect-cost pools, direct materials and direct manufacturinglabor, and oneindirect-cost pool, manufacturing overhead. In 2016, manufacturing overhead was allocated to jobs at 120% of direct manufacturing labor cost. At the end of 2016, an immaterial amount of underallocated overhead was closed out to cost of goodssold, and the company showed a small loss.

T accounts Required for:

Direct Materials Control, Work in process control, Finished Good control, Manufacturing OH control, Manufacturing OH allocated, Cost of Goods Sold