Question
Matix Furniture Company manufactures specialist furniture for use with computers. It uses a FIFO costing system to allocate costs to Finished Goods and maintains its
Matix 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 2019 to 30 June 2020.
The Work in Process Inventory on 31 May 2020 consisted of the following:
Job No. Description Units Accumulated Cost
SE523 Storage Equipment 20,000 $860,000
PS612 Printer Stand 25,000 $300,000
CH421 Chair 15,000 $431,000
Total $1,591,000
The Finished Goods Inventory at 31 May 2020 was as follows: Item Description Quantity(units) Unit cost Accumulated cost Storage Equipment 7500 $64 480,000 Printer Stand 21000 $55 1,155,000 Chair 19400 $35 679,000 Desk 11200 $102 1,142,400 Total 3,456,400 At the end of May 2020, the balance in Matix Furniture Company 's Material Inventory Account was $579,000. Purchases of Material Inventory during June were $622,000. The Raw Material requisitioned for jobs during June were as follows: Job number RM used SE523 167,000 PS612 221,000 CH421 13,800 DS174(5000 desks) 252,000 Matix 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. From July 2019 to the end of May 2020 the company has used 835,000 machine hours and its actual manufacturing overhead has amounted to $4,105,000. During the month of June 2020 machine hours, labour hours and labour cost was as follows: Job number Machine hours Labour hours labour cost SE523 12,000 11,600 $122,400 PS612 19,500 14,300 $200,500 CH421 4,400 3,600 $43,200 DS174 14,000 12,500 $138,000 Indirect labour 3,000 $29,400 Supervision $57,600 Total 49,900 45,000 $591,100 The jobs completed in June 2020 and the unit sales during June 2019 were as follows: Job number Item Description Quantity completed Unit sales SE523 Storage Equipment 20,000 17,500 PS612 Printer Stand - 18,000 CH421 Chair 15,000 21,000 DS174 Desk 5,000 6,000 Required: (a)Describe the circumstances when a job order costing system should be used. (b)Calculate, showing working, the balance in Matix Furniture Company's Work in Process Account at 30 June 2020.
(c)Calculate the cost of the chairs in the Finished Goods Inventory at 30 June 2020. (d)Actual manufacturing overhead incurred in June amounted to 217,000 .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 Matix 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.
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