Jem Jewel Pte Ltd (“JJ”) uses normal and job order costing. JJ had two jobs in process at the start of March: job number 84 ($34,000) and job number 85 ($54,000). JJ applies manufacturing overhead on the basis of machine hours (“MH”). The budgeted overhead and machine activity level for the year were anticipated to be $390,000 and 13,000 MH, respectively. JJ worked on four jobs during March. The direct materials used, direct labour incurred and machine hours consumed during March were as shown in the table below.

Budgeted and actual direct labour rate is $12 & $15 per hour respectively.

Manufacturing overhead incurred for March are as follows: depreciation ($23,000), indirect labour ($45,000), indirect materials used ($40,000) and other factory expenses ($30,000). JJ paid cash for all overhead expenses. Manufacturing overhead variance is closed on a monthly basis by proration to work in process, finished goods and cost of goods sold. During March, JJ completed job numbers 84, 85 and 86. Job number 85 was sold on credit for a gross profit of $34,500.

Required:

(a) Compute JJ’s predetermined overhead rate.

(b) Prepare journal entries (to describe the flow of production-related costs) for March to record the for March to record the following:

(i) Manufacturing overhead incurred.

(ii) Application of manufacturing overhead to production.

(iii) Completion of Job number 84, 85, and 86.

(c) Compute the costs of jobs still in production and costs in finished goods inventory at the end of March.

(d) Determine the under / over-applied manufacturing overhead for March.

(e) Calculate the amounts to be charged to work in process, finished goods inventory and cost of goods sold at the end of March in order to close off the manufacturing overhead variance.

(f) The CEO is concerned about the impact of the manufacturing overhead variance on net profit. He believes that closing the overhead variance only to cost of goods sold will minimize the impact on net profit for March. Is he correct? Explain.
 

uay Machine hours Job number Direct material Direct labour (MH) 1,200 $23,000 $0 $36,000 $16,000 $30,000 $45,000 $15,000 84 85 700 86 2,000 87 $15,000 500