Question
BoatAdventures Company manufactures custom designed toy sailboats. The company uses a job order costing system. Overhead is applied based on direct labor hours. Estimated overhead
BoatAdventures Company manufactures custom designed toy sailboats. The company uses a job order costing system. Overhead is applied based on direct labor hours. Estimated overhead for 2019 is $11,840 and the company estimates it will use 7,400 direct labor hours. The following events occurred in May.
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The company purchased materials for $800 on account.
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The production supervisor requisitioned 15 sheets of fiberglass for constructing the boats. The fiberglass was in stock and originally cost $3 a sheet.
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Direct labor on the boats cost $500.
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More materials were purchased for $350 on account.
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Indirect labor costs were $210.
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A utility bill for the boat factory was $230 and was paid in cash.
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Additional materials were placed into production that cost $215.
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Manufacturing overhead was applied (direct labor during May totaled 500 hours)
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One sailboat was completed which cost $325.
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The completed sailboat was sold for $750.
Show all calculations. Hint you might find it easiest to prepare journal entries or T-accounts to account for the transactions above.
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Determine the overhead application rate.
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What is the balance in Materials Inventory at May 31?
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What is the balance in Work in Process Inventory at May 31?
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The general manager asks you why the company needed to calculate an overhead application rate? She wonders, wont the department keep track of overhead costs? Isnt THAT the overhead to use? Explain to her the accounting for overhead.
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