Question
Juarez, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining
Juarez, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The company applies manufacturing overhead using machine hours in the Machining Department and direct-labor cost in the Assembly Department. The following information relates to the year just ended: |
Machining Department | Assembly Department | |
Budgeted manufacturing overhead | $4,000,000 | $3,136,000 |
Actual manufacturing overhead | 4,270,000 | 3,030,000 |
Budgeted direct-labor cost (based on practical capacity) | 1,500,000 | 5,600,000 |
Actual direct-labor cost | 1,450,000 | 5,780,000 |
Budgeted machine hours (based on practical capacity) | 400,000 | 100,000 |
Actual machine hours | 425,000 | 110,000 |
The data that follow pertain to job no. DC66, the only job in production at year-end. |
Machining Department | Assembly Department | |
Direct material | $24,500 | $ 6,700 |
Direct labor | $27,800 | $58,700 |
Machine hours | 360 | 150 |
Selling and administrative expense amounted to $2,500,000. |
5. | If Juarez disposes of under- or overapplied overhead as an adjustment to Cost of Goods Sold, would the companys Cost of Goods Sold account increase or decrease? |
6. | How much overhead would have been charged to the companys Work-in-Process account during the year? |
7. | Comment on the appropriateness of the companys cost drivers (i.e., the use of machine hours in Machining and direct-labor cost in Assembly). | ||||
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