Question
CompuFurn Ltd manufactures furniture for computer work stations. The company uses a job costing system. The work in process inventory on 30 November consisted of
CompuFurn Ltd manufactures furniture for computer work stations. The company uses a job costing system. The work in process inventory on 30 November consisted of the following jobs:
Job No. Description. Units. Total cost
CC723 Computer caddy 20 000. $ 900 000
CH291 Chair. 15 000. 431 000
PS812 Printer stand 25 000 250 000
Total. $ 1 581 000
On 30 November, the company's finished goods inventory consisted of four items:
Item. Quantity and unit cost Total cost
Computer caddy 7 500 units @ $64 each. $ 480 000
Chair. 19 400 units @ $35 each. 679 000
Printer stand. 21 000 units @ $55 each. 1 155 000
Desk. 11 200 units @ $102 each. 1 142 000
Total. $ 3 456 400
At the end of November, the balance in CompuFurn's materials inventory account, which includes both raw materials and purchased parts, was $668 000. Additions to and requisitions from the materials inventory during December included the following.
Additions and requisitions. Raw materials Purchased parts
Additions $242 000 $396 000
Requisitions:
Job CC723 51 000 104 000
Job CH291 3 000 10 800
Job PS812 124 000 87 000
Job DS444 65 000 187 000
(5000 desks)
CompuFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totals $4 500 000. The company planned to use 900 000 machine hours during this period, which is the firm's estimated practical capacity.
Through the first 11 months of the year, a total of 830 000 machine hours were used, and actual overhead amounted to $4 140 000.
During December, machine hours and labour hours consisted of the following:
Account. Machine hoursLabour hoursLabour cost
CC723 12 000. 11 600 $ 122 400
CH291. 4 400. 3 600 43 200
PS812. 19 500. 14 300 200 500
DS444. 14 000. 12 500 138 000
Indirect labour. - 3 000 29 400
Supervision. - - 57 600
Total. 49 900 45 000 $ 591 100
The jobs completed in December and the unit sales for that month are as follows:
Job No. Production items. Quantity completed. Item Quantity shipped
CC723 Computer caddy 20 000 Computer caddy. 17 500
CH291. Chair 15 000 Chair 21 000
DS444. Desk 5 000 Printer stand 18 000
Desk 6 000
Required:
i.Explain when it is appropriate for a company to use a job costing system.
ii.Calculate the balance in CompuFurn's work in process inventory account as at 31 December.
iii.Calculate the cost of the chairs in CompuFurn's finished goods inventory as at 31 December.
iv.Actual manufacturing overhead incurred in December amounted to $252 000. Calculate CompuFurn's overapplied or underapplied overhead for the year.
v.Explain two alternative accounting treatments for overapplied or underapplied overhead balances when using a job costing system.
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