Question
P4-45 Luke Bolton joined Jackson Enterprises as controller in October 2016. LOADING...(Click the icon for additional information about Jackson Enterprises.) Choose from any list or
P4-45
Luke Bolton joined Jackson Enterprises as controller in October 2016.
LOADING...(Click the icon for additional information about Jackson Enterprises.)
Choose from any list or enter any number in the input fields and then click Check Answer.
More Info
Jackson Enterprises manufactures and installs home greenhouses. The company uses a normal-costing system with two direct-cost pools, direct materials and direct manufacturing labor, and one indirect-cost pool, manufacturing overhead. In 2016, manufacturing overhead was allocated to jobs at
150% of direct manufacturing labor cost. At the end of 2016, an immaterial amount of underallocated overhead was closed out to cost of goods sold, and the company showed a small loss.
Bolton is eager to impress his new employer, and he knows that in 2017, Jackson's upper management is under pressure to show a profit in a challenging competitive environment because they are hoping to be acquired by a large private equity firm sometime in 2018.
At the end of 2016, Bolton decides to adjust the manufacturing overhead rate to 170% of direct labor cost. He explains to the company president that, because overhead was underallocated in 2016, this adjustment is necessary. Cost information for 2017 follows:
LOADING...(Click the icon to view the cost information for 2017.)
Direct materials control, 1/1/2017
26,000
Direct materials purchased, 2017
620,000
Direct materials added to production, 2017
600,000
Work in process control, 1/1/2017
230,000
Direct manufacturing labor, 2017
930,000
Cost of goods manufactured, 2017
3,020,680
Finished goods control, 1/1/2017
179,000
Finished goods control, 12/31/2017
323,840
Manufacturing overhead costs, 2017
1,400,000
Jackson's revenue for 2017 was $ 5 comma 244 comma 000, and the company's selling and administrative expenses were $ 2 comma 530 comma 000.
Read the requirements LOADING....
1.
Insert the given information in the T-accounts provided. Calculate the following amounts to complete the T-accounts:
a.
Direct materials control,
12/31/20172017
b.
Manufacturing overhead allocated, 20172017
c.
Cost of goods sold, 20172017
2.
Calculate the amount of under- or overallocated manufacturing overhead.
3.
Calculate
JacksonJackson's
net operating income under the following:
a.
Under- or overallocated manufacturing overhead is written off to cost of goods sold.
b.
Under- or overallocated manufacturing overhead is prorated based on the ending balances in work in process, finished goods, and cost of goods sold.
4.
BoltonBolton
chooses option 3a above, stating that the amount is immaterial. Comment on the ethical implications of his choice. Do you think that there were any ethical issues when he established the manufacturing overhead rate for
20172017
back in late
20162016?
Refer to the IMA Statement of Ethical Professional Practice.
Requirement 1. Insert the given information in the T-accounts below. Calculate the following amounts to complete the T-accounts: (a) Direct materials control,
12/31/20172017,
(b) Manufacturing overhead allocated,
20172017,
and (c) Cost of goods sold,
20172017.
(Abbreviations used: COGM = cost of goodsmanufactured, COGS = cost of goods sold, Dir = direct, Dir. Matls = direct materials, MOH = manufacturing overhead, and OH = overhead.)
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