ATC 12-1 Business Application Case Comprehensive job-order costing problem

Mid-Life Motorcycles (MLM) is a small shop that builds customized motorcycles, mostly for middle-aged men with significant discretionary income who are hoping to fulfill a high-school dream. Since it works with high-end clients, all of its work is custom and it makes many of the bike parts used, including frames, in-house. Other parts, such as the engine, are purchased from outside suppliers and then modified in-house. Although most of the bikes are built to-order for a specific individual, the shop occasionally builds a bike with no prearranged buyer. These bikes are sometimes intended to be entered in custom-bike contest and then sold afterwards.

The shop has been in existence for 10 years, but for the sake of simplicity, assume it has no beginning inventories for 2019. Fivemotorcycle restoration projects were worked on during 2019. By the end of the year, four of these projects were complete and three of them had been sold.

The following selected data are from MLM's 2019 budget.

Advertising	$ 5,000
Direct materials	150,000
Direct labor	130,000
Rent on office space	6,000
Rent on factory space	20,000
Indirect materials	11,000
Maintenance costs for factory equipment	3,000
Utilities costs for office space	1,000
Utilities costs for factory space	2,000
Depreciation on factory equipment	8,000
Machine hours expected to be worked	4,000
Direct labor hours expected to be worked	6,500

The following information relates to production events during 2019.

• Raw materials were purchased for $155,000.
• Materials used in production totaled $150,800; $11,500 of these were considered indirect materials costs. The remaining $139,300 of direct materials costs related to individualmotorcycle jobs as follows.

Job Number	Direct Materials Cost
115	$28,200
116	32,100
117	25,800
118	31,700
119	21,500

• Labor costs incurred for production totaled $133,100. The workers are highly skilled craftsmen who require little supervision. Therefore, all of these costs were considered direct labor costs and related to individual jobs as follows.

Job Number	Direct Labor Cost
115	$30,900
116	29,300
117	22,100
118	36,600
119	14,200

• Paid factory rent of $18,000.
• Recorded depreciation on factory equipment of $8,500.
• Made $2,500 of payments to outside vendors for maintenance of factory equipment.
• Paid factory utilities costs of $2,400.
• Applied manufacturing overhead using a predetermined rate of $11.00 per machine hour. The 3,750 machine hours that were used relate to each job as follows.

Job Number	Machine Hours Worked
115	850
116	720
117	870
118	900
119	410

• Completed all jobs except Job 119 and transferred those projects to finished goods.
• Sold three jobs for the following amounts:

Job Number	Sales Price
115	$88,900
116	93,000
117	74,800

• Closed the Manufacturing Overhead account to transfer any overapplied or underapplied overhead to the Cost of Goods Sold account.

REQUIRED

a. Assume MLM had used direct labor hours (versus machine hours) as its cost driver. Compute its predetermined overhead rate.

b. Determine the ending balance in Raw Materials Inventory.

c. Determine the ending balance in Finished Goods Inventory.

d. Determine the ending balance in Work in Process Inventory.

e. Determine the costs of goods manufactured.

f. Determine the amount of Cost of Goods Sold.

g. Determine the amount of gross margin that was earned on Jobs 115, 116, and 117.

h. Determine the amount of overapplied or underapplied overhead that existed at the end of the year.