Management Accounting

Due Week 10Worth 20marks

Turramurra Furniture Company manufactures specialist furniture for use with computers .It uses a FIFO costing system to allocate costs to Finished Goods and maintains its financial records on a financial year which operates from 1 July 2018 to 30 June 2019 .

The Work in Process Inventory on 31 May 2019 consisted of the following :

Job No.DescriptionUnitsAccumulated Cost

SE523Storage Equipment20,000$900,000

PS612Printer Stand25,000250,000

CH421Chair15,000431,000

Total$1,581,000

The Finished Goods Inventory at 31 May 2019 was as follows :

Item DescriptionQuantity and Unit costAccumulated Cost

Storage Equipment7,500 units at $64 each$480,000

Printer Stand21,000 units at $55 each1,155,000

Chair19,400 units at $35 each679,000

Desk11,200 units at $102each1,142,400

Total$3,456,400

At the end of May 2019 the balance in Turramurra Furniture Company 's Material Inventory Account

was $668,000 .Purchases of Material Inventory during June were $638,000.

The Raw Material requisitioned for jobs during June were as follows:

Job No.$

SE523155,000

PS612211,000

CH42113,800

DS174(5000 desks)252,000

Turramurra Furniture Company applies manufacturing overhead on the basis of machine hours.The manufacturing overhead budget for the year totalled $4,500,000 and the company budgeted it would be using 900,000 machine hours .FromJuly 2018 to the end of May 2019 the company has used 830,000 machine hours and its actual manufacturing overhead has amounted to $4,122,000.

During the month of June 2019 machine hours ,labour hours and labour cost was as follows:

Job NoMachine HoursLabour HoursLabour Cost

SE52312,00011,600$ 122,400

PS61219,50014,300200,500

CH4214,4003,60043,200

DS17414,00012,500138,000

Indirect labour3,00029,400

Supervision 57,600

Total49,90045,000591,100

The jobs completed in June 2019 and the unit sales during June 2019 were as follows:

Job NoDescriptionQuantity completedUnit sales

SES523Storage Equipment19,00017,500

PS612Printer Stand018,000

CH421Chairs14,00021,000

DS174Desks5,0006,000

Required:

(a)Describe the circumstances when a job order costing system should be used

(b)Calculate,showing working, the balance in Turramurra Furniture Company's Work in Process

Account at 30 June 2019.

(c)Calculate the cost of the chairs in the Finished Goods Inventory at 30 June 2019

(d)Actual manufacturing overhead incurred in June amounted to 246,000 .Calculate the over or underapplied overhead for the year.

(e) Outline two different treatments for the over or underapplied overhead balances when using a job order costing system.

( f)If the Turramurra Furniture Company considers that a variation of $40,000 in the over or underapplication of overhead is material and must be dealt with appropriately in the accounts

is the variation(over or underapplication of overhead) material? If it is what approach does the company use to adjust the over or underapplication of overhead?

(g) The company is concerned with its calculation and application of overhead and has asked you to advise if it should consider using Activity Based Costing as it is considering expanding its product range and its concerns about overhead application .