PART 1 (25 marks)

Starz Invitations & More does customized, hand-crafted memorabilia, in which each batch of items is a job. The company has a highly labour intensive production process, so it allocates manufacturing overhead based on direct labour hours.

Starz pre-determined overhead application rate for 20X8 was computed from the following data:

Total estimated factory overheads $2,400,000 Total estimated direct labour hours 40,000

At the end of May 20X8, Starz Invitations & More reported the following inventories:Materials Inventory WIP Inventory Finished Goods Inventory

Bal. $208,000 Bal. $176,000 Bal. $95,000

During June 20X8, Starz Invitations & More actually used 3,000 direct labour hours and recorded the following transactions.

(i)	Purchased materials on account	$310,000
(ii)	Manufacturing wages incurred	$400,000
(iii)	Materials requisitioned (includes $30,000 of indirect materials)	$420,000
(iv)	Assigned manufacturing wages, 85% direct labour, 15% indirect labour
(v)	Depreciation expense on factory equipment used on the different jobs	$95,000
(v)	Other manufacturing overhead incurred	$35,000
(vi)	Allocated manufacturing overhead for June 20X8
(vii)	Cost of jobs completed	$995,000
(viii)	Cost of jobs sold (on account) at a margin of 3313% on sales	$960,000

Required: (a) Compute Starzs predetermined manufacturing overhead rate for 20X8. (2 mark)

(b)State the journal entries necessary to record the above transactions in the general journal.Assume that Starz uses the perpetual inventory system. (10 marks)

(c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account and state the balance on the account before performing end of period closing entries. Show the

journal entries necessary to dispose of the variance.

4. (d) What is the balance in the Cost of Goods Sold account after the adjustment?

5. (e) Compute Starzs gross profit earned on the jobs completed.

(3 marks) (2 marks) (2 marks)

(f) Open T-accounts for Materials Inventory, Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts & determine the ending account balances. (6 marks)

PART 2 (25 marks)

Valentine Accessories Plus produces brass handles for the furniture industry in a four-stage process Mixing, Moulding, Polishing and Packaging. Costs incurred in the Polishing Department during January are summarized as follows:

WIP - Polishing Process A/C

January 1 Bal. Transfer from Moulding Direct Materials Added Direct Labour Manufacturing Overhead

20,000

$ 0 1,310,000

391,600 638,000 307,400

Normal losses are estimated to be 212% of input during the period. Inspection takes place during the processing operation, at which point damaged handles are separated from good handles and sold as scrap to local furniture manufacturers at $85 each.

At inspection, 2,000 handles were rejected as scrap. These units had reached the following degree of completion:

Transfer from Moulding 100% Direct material added 40%

Conversion costs 20%

Work-in-progress at the end of January was 4,000 handles and had reached the following degree of completion:

Transfer from Moulding 100% Direct material added 80% Conversion costs 50%

Direct materials added and conversion costs are incurred uniformly throughout the process.

Required:

1. (a) Compute the equivalent units and cost per equivalent units for direct materials (From Moulding & Direct materials added) and conversion costs. (10 marks)

2. (b) Compute the: cost of the unexpected losses total cost of the handles completed and transferred out of the Packaging Department cost of ending work in process inventory in the Polishing Department (3 marks)

3. (c) Complete the Work in Process Inventory Polishing Process T-account, clearly showing the ending balance. (5 marks)

4. (d) Prepare the journal entries for the: assignment of direct materials, direct labour incurred and the manufacturing overhead

   applied to the Polishing Process cost of the units completed and transferred out to the Packaging Process (5 marks)

5. (e) Given that 30% of the unexpected losses were as a result of pilferage, calculate Valentine Accessories true loss for the Polishing Department. (2 marks)