Jeffrey Hatfield joined Walker Enterprises as controller in October 2016. (Click the icon for additional information about Walker Enterprises.) Hatfield is eager to impress his new employer, and he knows that in 2017, Walker'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 2018. At the end of 2016, Hatfield decides to adjust the manufacturing overhead rate to 190% of direct labor cost. He explains to the company president that, because overhead was underallocated in 2016, this adjustment is necessary. Cost information for 2017 follows: (Click the icon to view the cost information for 2017.) Walker's revenue for 2017 was $5,905,000, and the company's selling and administrative expenses were $3,069,000. Read the requirements. More info Walker Enterprises manufactures and installs home greenhouses. The company uses a normal-costing system with two direct-cost pools, direct materials and direct manufacturing labor, and one indirect-cost pool, manufacturing overhead. In 2016, manufacturing overhead was allocated to jobs at 120% of direct manufacturing labor cost. At the end of 2016, an immaterial amount of underallocated overhead was closed out to cost of goods sold, and the company showed a small loss. Data table Direct materials control, 1/1/2017 28,000 Direct materials purchased, 2017 610,000 Direct materials added to production, 2017 600,000 Work in process control, 1/1/2017 290,000 Direct manufacturing labor, 2017 700,000 2,605,495 Cost of goods manufactured, 2017 Finished goods control, 1/1/2017 Finished goods control, 12/31/2017 Manufacturing overhead costs, 2017 695,000 300,045 1,150,000 Requirements 1. Insert the given information in the T-accounts provided. Calculate the following amounts to complete the T-accounts: a. Direct materials control, 12/31/2017 b. Manufacturing overhead allocated, 2017 c. Cost of goods sold, 2017 2. Calculate the amount of under- or overallocated manufacturing overhead. 3. Calculate Walker's net operating income under the following: a. Under- or overallocated manufacturing overhead is written off to cost of goods sold. b. Under- or overallocated manufacturing overhead is prorated based on the ending balances in work in process, finished goods, and cost of goods sold. 4. Hatfield chooses option 3a above, stating that the amount is immaterial. Comment on the ethical implications of his choice. Do you think that there were any ethical issues when he established the manufacturing overhead rate for 2017 back in late 2016? Refer to the IMA Statement of Ethical Professional Practice. Requirement 1. Insert the given information in the T-accounts below. Calculate the following amounts to complete the T-accounts: (a) Direct materials control, 12/31/2017, (b) Manufacturing overhead allocated, 2017, and (c) Cost of goods sold, 2017. (Abbreviations used: COGM = cost of goods manufactured, COGS = cost of goods sold, Dir = direct, Dir. Matls = direct materials, MOH = manufacturing overhead, and OH = overhead.) Bal. Direct Materials Control Bal. Bal. Finished Goods Control Bal. Bal. Bal. Work-in-Process Control Bal. Manufacturing OH Control Bal. Bal. Manufacturing OH Allocated Bal. Bal. Cost of Goods Sold Bal