Case Study

Optic Vision Pty Ltd, a manufacturer of fibre-optic communications equipment, uses a job

costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. Estimated manufacturing overhead costs of $3 600 000 and an estimated cost driver level of 80 000 machine hours.

Operations for the current year have been completed, and all the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from work in process to finished goods for the jobs completed in December, and the transfer of costs from finished goods to cost of goods sold for the jobs that have been sold during December.

Summarised data as at 30 November, and for December, are presented in the following tables. Job numbers T11-007, N11-013 and N11-015 were completed during December. All completed jobs except job number N11-013 had been turned over to customers by the close of business on 31 December

Work in process: December activity Job numbers Balance 30 November Direct material Direct labour Machine hours T11-007 $261 000 $ 4500 $ 13 500 300 N11-013 165 000 12 000 36000 1 000 N11-015 76 800 80 100 1400 D12-002 113 700 60 000 2 500 D12-003 0 78 000 50400 800 Totals $426000 $285 000 $240 000 6000Operating activity Activity to 30 November December activity Actual manufacturing overhead incurred: Indirect material $ 375 000 $ 27 000 Indirect labour 1 035 000 90 000 Utilities 735000 66 000 Depreciation 1 155 000 105 000 Total overhead $3 300 000 $288 000 Other items: Raw material purchases* $2 895 000 $294000 Direct labour cost $2535 000 $240 000 Machine hours 73 000 6000 Account balances at beginning 1 January Raw material inventory* $ 315000 Work in process inventory 180 000 Finished goods inventory 375 000 * Raw material purchases and raw material inventory consist of both direct and indirect materials. The balance of the raw material inventory account as at 31 December is $255 000