Elite Home Decor manufactures customized household furnishings. The company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. Elite expects to incur $2,205,000 of manufacturing overhead costs and estimated direct labour costs of $3,150,000 during 2020.

At the end of December 2019, Elite reported work in process inventory (Job 551) of $93,000

The following events occurred during January - March 2020.

i)Purchased materials on account, $392,000

ii)Incurred manufacturing wages of $400,000

iii)Requisitioned direct materials and used direct labour in manufacturing

Direct Materials Direct Labour

Job 551 $70,200 $61,200

Job 552 97,500 115,600

Job 553 105,300 78,200

Job 554 117,000 85,000

i)Issued indirect materials to production, $30,000.

ii)Charged indirect manufacturing wages to production, $60,000.

iii)Depreciation of production machinery, $85,000.

iv)Other manufacturing overhead costs incurred on units 551 to 554 amounted to $49,000 viii)Allocated overheads to jobs at the predetermined rate

ix)Units completed: 551, 552 & 554

x)Sold units 551 & 554 (billed customers at a margin of 33% on sales)

What needs to be done:

(a)Compute Elite's predetermined manufacturing overhead rate for 2020.

(b)Calculate the total manufacturing costs for each job.

(c)Using the total figures, record the above transactions in the general journal.

(d)Post the manufacturing overhead transactions to the Manufacturing Overhead T-account, clearly showing the balance before closing the account. State the journal entries necessary to dispose of the variance. Assume that the manufacturing overhead variance is immaterial.

(e)What is the balance in the Cost of Goods Sold account after the adjustment?

(f)Compute Elite's gross profit earned on the jobs sold, after adjusting for the manufacturing overhead variance.

(g)Post the appropriate entries to Work in Process Inventory account & determine the account balance on March 31, the end of the quarter.

PART 2

Better Choice Foods makes a single product using two processes. Quality control check takes place during the process, at which point, rejected units are separated from good units.

The following details relate to production for the month of April 20X9, for Process 2.

(i)Work-in-process, beginning inventory:-0-

(ii)Transfer from Process 1: 15,000 units valued at $51.40 each

(iii)Other manufacturing costs incurred during April:

Direct material added $513,000

Direct labour $365,000

Manufacturing overhead $211,000

(iv)Normal losses were estimated to be 5% of input during the period. Losses from Process 2 are deemed to be scrap, and sold at $40 per unit.

(v)At inspection 1,750 units were rejected as scrap. These units had reached the following degree of completion:

Input material 100%

Direct material added 50%

Conversion costs 30%

(vi)12,000 units were completed and transferred to Finished Goods Inventory.

(vii)Work-in-process at the end of April had reached the following degree of completion:

Input material 100%

Direct material added 80%

Conversion costs 40%

What needs to be done:

(a)Organize a statement of equivalent production to determine the equivalent units for direct materials (From Process 1 & Direct Material Added), and conversion costs and the cost per equivalent unit for direct materials and conversion costs.

(b)Calculate the:

-Total cost of units completed and transferred to Finished Goods inventory

-Cost of abnormal losses

-Cost of ending work-in-process inventory in Process 2

(c)Organize Better Choice's Work-In-Process Inventory - Process 2 T-account, clearly showing the ending balance.

(d)State the journal entries necessary to record the assignment of direct materials, direct manufacturing wages and manufacturing overhead applied to Process 2. Also give the journal entries to record the cost of goods completed and transferred to finished goods.

Given that 20% of the unexpected losses were as a result of pilferage, prepare the abnormal spoilage statement, clearly showing Better Choice's true loss.