Paragraph Styles Job costing, ethics. Joseph Underwood joined Anderson Enterprises as controller in October 2016. Anderson 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 under allocated overhead was closed out to cost of goods sold, and the company showed a small loss. Underwood is eager to impress his new employer, and he knows that in 2017, Anderson'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, Underwood decides to adjust the manufacturing overhead rate to 160% of direct labor cost. He explains to the company president that, because overhead was under allocated in 2016, this adjustment is necessary. Cost information for 2017 follows: Direct materials control, 1/1/2017 Direct materials purchased, 2017 Direct materials added to production, 2017 Work in process control, 1/1/2017 Direct manufacturing labor, 2017 Cost of goods manufactured, 2017 Finished goods control, 1/1/2017 Finished goods control, 12/31/2017 Manufacturing overhead costs, 2017 25,000 650,000 630,000 280,000 880,000 2,900,000 320,000 290,000 1,300,000 Anderson's revenue for 2017 was $5,550,000, and the company's selling and administrative expenses were $2,720,000. 3. Insert the given information into T-accounts that you setup in your excel spreadsheet. Use your borders function to set up your T-account lines in good form. Calculate, post, and label all information or entries within your T-accounts. Use the following accounts and any others deemed necessary. a. Direct materials control, 12/31/2017 b. Manufacturing overhead allocated, 2017 c. Cost of goods sold, 2017 Direct Materials Control Work-in-Process Control Finished Goods Control Manufacturing OH Control Manufacturing OH Allocated Cost of Goods Sold 4. Calculate the amount of under- or over allocated manufacturing overhead. Show your calculation on your spreadsheet. 5. Calculate (show your work on your spreadsheet) Anderson's net operating income under the following: a. Under- or over allocated manufacturing overhead is written off to cost of goods sold. b. Post your closing entries to your T accounts and show all of your account balance totals. 6. Recreate (by copying) all of your T-accounts as they were before you posted the closing entries in number 5 above. In other words, set up the accounts as they were before you closed out the difference in your Manufacturing OH Control and Manufacturing OH Allocated with the offset going to the Cost of Goods Sold account. You are now going to use the proration method to close out your difference in Manufacturing OH Control and Manufacturing OH Allocated. a. Under- or over allocated manufacturing overhead is prorated based on the ending balances in work in process, finished goods, and cost of goods sold. Prepare a proration schedule like we did in class and then post your closing entries to your T-accounts. You will be allocating to Work-in-Process, Finished Goods, and Cost of Goods Sold. You should calculate the amounts to post and your ending balances within your schedule. Your balances in your prorated T-accounts should agree with those in your proration schedule
