Question
I'd greatly appreciate if you can upload your own work. Many thanks! Jamison Mooney joined Gord's Greenhouses as controller in October 2020. Gord's Greenhouses manufactures
I'd greatly appreciate if you can upload your own work. Many thanks!
Jamison Mooney joined Gord's Greenhouses as controller in October 2020. Gord's Greenhouses manufactures and installs home greenhouses. The company uses a normal-costing system with two direct-cost pools, direct materials and direct manufacturing labour, and one
indirect-cost pool, manufacturing overhead. In 2020, manufacturing overhead was allocated to jobs at 150% of direct manufacturing labour cost.
At the end of 2020, an immaterial amount of under-allocated overhead was closed out to cost of goods sold, and the company showed a small loss. Mooney is eager to impress his new employer, and he knows that in 2021, Gord's upper management is under pressure to show a profit in a challenging competitive environment because they are hoping to be acquired by a large private equity firm sometime in 2021.
At the end of 2020, Mooney decides to adjust the manufacturing overhead rate to 170% of direct labour cost. He explains to the company president that because overhead was under-allocated in 2020, this adjustment is necessary. Cost information for 2021 follows:
Gord's revenue for 2021 was $5,244,000 and the company's selling and administrative expenses were $2,530,000.
Requirements
1)Calculate the following amounts (1 mark each; 3 marks total):
a)Direct materials control, 12/31/2021
b)Manufacturing overhead allocated, 2021
c)Cost of goods sold, 2021
2)Calculate the amount of under- or overallocated manufacturing overhead for 2021. (1 mark)
3)Calculated Gord's net operating income for 2021 under the following:
a)Under- or overallocated manufacturing overhead is written off to cost of goods sold (0.5 marks)
b)Under- or overallocated manufacturing overhead is prorated based on the ending balances in work in process, finished goods, and cost of goods sold. (1.5 marks)
4)Mooney chooses option 3a above, stating that the amount is immaterial.
a)According to accounting standards and guidance, is this the correct approach? If not, which approach should be chosen? Other than accounting standards, can you think of any other reasons to support your choice? (2 marks)
b)Comment on the ethical implications of Jackson's choices, referring to the IMA Statement of Ethical Professional Practice:
i)In setting the overhead rate of 170% (1 mark)
ii)In choosing option 3a as the write-off method (1 mark)
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