Owly Company manufacture customized components. During this month, the company worked on three jobs and recorded the following:

Job 1

Job 2

Job 3

Direct materials used

3,200

4,500

6,100

Direct labor

2,100

3,000

4,200

Machine hours used

500

200

300

Direct labor hour

70

100

140

Production volume

1,200

2,300

3,300

Lot Size

1

5

15

Price

20

30

5

Job 1 was completed but not sold, Job 2 was still in progress, and job 3 was completed and sold.

Before the beginning of this month, the company estimated the operating expenses. The company also estimated total machine hours, direct labor hours, and total production volume to be 1,100 hours, 300 hours, and 6,500 units, respectively.

Sales salaries

3,000

Indirect labor

1,600

Production manager's salary

4,000

Marketing costs

6,000

Factory lease

4,000

The company asked its production supervisor to come up with an allocation method for the manufacturing overhead. The company wants to allocate the fixed proportion of manufacturing overhead equally to their three products. The rest of manufacturing overhead should be allocated by an appropriate allocation base. following a typical job-order costing method. The production supervisor examined the results of past operations to find the allocation base for the manufacturing overhead. She believes that a measure that best explains the changes in manufacturing overhead should be the allocation base.

Manufacturing overhead

Machine hours

Production Volume

Direct labor hour

9,600

340

4,960

300

10,200

140

60

320

9,600

400

4,590

300

8,700

20

1,980

270

7,800

330

460

240

9,600

240

2,920

300

8,700

350

1,420

270

7,800

190

2,650

240

6,900

410

3,540

210

10,500

170

3,320

330

12,300

300

4,470

390

13,200

390

1,540

420

Required:

1) Compute the estimated total manufacturing overhead

2) Find the appropriate allocation base for the manufacturing overhead. Provide quantitative support for your choice (hint: you can plot the data, apply high-low method, or estimate regression lines).

3) Provide the linear cost function of manufacturing overhead (hint: manufacturing overhead has both fixed and variable elements).

4) Calculate the cost of goods sold, costs of goods manufactured, and work-in-progress of Owly Company for this month before the adjustment of over- or under-applied overhead.

5) The actual operating expenses are as follows:

Sales salaries

3,000

Indirect labour

1,600

Production manager's salary

4,000

Marketing costs

6,000

Factory lease

4,000

The company found that the actual fixed manufacturing overhead was $600, and variable overhead was $9,000. The company decided to adjust over- or under-applied manufacturing overhead by adjusting the costs of goods sold. Compute the costs of goods sold after the adjustment and prepare an income statement for this month.