It had been sometime since Buster A. Move stood in the unemployment line wondering why an undergraduate degree in liberal arts hadnt paid off. Getting his MS in Accountancy was the catalyst to his rise as a famous entrepreneur. His coaster company, Twist & Shout, had become the leading supplier of coasters for the next generation. But Buster knew the coaster business would always be susceptible to economic downturns. In order to continue his companys growth and protect his shareholders he purchased a small business which he believed was impervious to economic downturns.

This recently acquired business, Deep Six, built personal submarines for the well-to-do. The market for the companys products was people insulated from the realities of the here-and-now and who continued to spend their money regardless of economic conditions. With price tags of $750,000 to $3.0 million, the personal submarines were not in reach of most consumers. In addition to the initial staggering price tags, there were significant annual operating costs for continued training, maintenance contracts, insurance, etc. Busts customer list was a whos-who of the rich-and- famous --- rock stars, academy award winners, technology billionaires, heads of state and many more.

Deep Six had invested a lot of money to build highly automated manufacturing facility which employed the very latest in robotic technology. Since each submarine was customized and built to order, the companys controller, Mr. Sub Standard, decided to use a job order costing system to accumulate product costs.

At the end of 2015, Deep Sixs senior accountant, Sunk Cost, a recent CSUF graduate, developed the following expectations for 2016 based on the VP Marketings, Ms. Saltee Walters, sales forecast:

Budgeted Overhead Costs $2,100,000

Estimated machine hours - $100,000

Estimated direct labor hours - $20,000

Estimated direct material cost - $3,000,000

The Inventory count, completed on December 31, 2015, revealed the following ending inventory balances:

Inventory Account Amount

Raw Materials Inventory $ 500,000 Work in Process Inventory $1,252,000

Finished Goods Inventory $ 680,000

The companys 2016 payroll data revealed the following actual payroll costs for the year:

Title	Number In Category	Hourly Pay	Annual Salary	Hours Worked Per Employee
COO	1		$ 250,000
VP Marketing	1		175,000
Controller	1		150,000
Senior Accountant	1		75,000
Factory manager	1		80,000
Assist factory mgr	1		64,000
Machine operator /assembler	6	$ 16.50		3,500
Other Admin Salaries			156,000
Guard, factory	3		25,000
Materials handler	4	$ 9.50		2,500
Secretary Corp	1		40,000
Janitor, factory	3	$ 8.00		2,250

The following information was taken from the companys schedule of Plant Assets. All assets are depreciated using the straight-line method.

Plant Asset	Purchase Price	Salvage Value	Useful Life
Factory building	$8,000,000	$300,000	20 Years
Admin office	$1,300,000	$250,000	30 Years
Factory Equipment	$4,000,000	$40,000	12 Years

Other miscellaneous costs for 2016 included:

Cost	Amount
Factory insurance $ 16,000
Administrative office utilities $ 8,200
Sales office utilities $ 1,800
Factory utilities $ 28,000
Factory lounge (magazines) $ 1,200
Factory cafeteria supplies $ 800
Admin Office supplies $ 6,000

Additional information about the operations at Deep Six in 2016 includes the following:

1. Raw materials purchases for the year 2016 amounted to $3,890,000;

2. The company used $3,740,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials;

3. Deep Six applied overhead to Work In Process Inventory based on direct materials costs. Subs costing of $6,900,000 to manufacture were completed and transferred out of

4. Subs costing of $6,900,000 to manufacture were completed and transferred out of Work in Process Inventory.

5. Sales for the year were $13,140,000; Cost of Goods Sold is 55% of selling price.

If a calculation is made to arrive at an answer then the calculation must be shown in order to receive credit a number without showing how it was derived is just a number.

Requirements:

a. What was the companys predetermined overhead rate in 2016?

b. Prepare the journal entries to record the companys costs for 2016. (MUST INCLUDE A DESCRIPTION AS TO THE PURPOSE OF THE JOURNAL ENTRY)

c. Post the journal entries for the following six T-accounts. You must cross reference your journal entries that are posted to the t-accounts see example:

1) Direct materials

2) Work in Process

3) Manufacturing Overhead

4) Finished Goods

5) Cost of Goods Sold

6) Sales

d. Was manufacturing overhead:

Under- or over- applied in 2016?

By how much?

e. Make the adjusting entry necessary to close the under- or over- applied manufacturing overhead to cost of goods sold

f. Job 999 was started and completed in 2016. The Job required 1,500 machine hours, 1,300 direct labor hours, and $550,000 in direct materials to complete.

i. What was the total cost of this job?

ii. If Cost of Goods Sold was 55% of sales, what sales price would be charged for the sub.

g. Prepare Cost of Goods Manufactured Schedule for 2016.

h. Prepare an Income Statement for year 2016