Question $1$

Chaos Manufacturing had the following financial information for the year ended December $312023$:

Inventory Balances:

Work in Progress

Finished Goods

Raw Materials

Beginning

$$60,000$

$$65,000$

$$30,000$

Ending

$$40,000$

$$77,000$

$$40,000$

During the year, the budgeted and actual costs were as follows:

Raw Materials

Labour

Depreciation Factory Equipment

Depreciation Office Equipment

Building Rent

Maintenance $-$ Factory Equipment

Utilities $-$ Electrical

Sales Commissions

Note $2-$Labour

Budget:

Direct Labour $$200,000+$ Factory Salaries $$90,000+$ Sales and Marketing Salaries $$160,000=$$$450,000$

Actual:

Direct Labour $$170,000+$ Factory Salaries $$85,000+$ Sales and Marketing Salaries $$163,000=$$$418,000$

Note $3-$ Building Rent

The building is all for the manufacturing facility.

Note $4-$ Utilities Electrical

For both budget and actual costs, $95\%$ of these costs are related to the factory, and $5\%$ of these costs are related

to the administrative office.

Note $5-$ Shipping

Budget: $20\%$ of budgeted shipping costs were for the delivery of raw materials to the manufacturing facility, and

the remaining $80\%$ of the shipping costs are for the delivery of finished goods to customers.

Actual: All of the shipping costs were for the delivery of finished goods to customer.

Note $6-$Overhead

Overhead is applied based on Direct Labour costs.

Required:

Part $1$

Based on Normal Costing, show the T$-$accounts for the three Inventory Accounts $($Raw Materials, WIP, Finished Goods$)$

and for Manufacturing Overhead. Prepare an income statement. You may either include the schedules of Cost of Goods

Manufactured and Cost of Goods Sold as part of the Income Statement or as separate schedules.

Part $2$

The company is unsure how to treat under$/$over applied overhead and would like your advice. Calculate the

allocation of under$/$over applied overhead based on your recommendation.

$($Note: when you see a question that asks for advice, the best approach is to $(1)$ first identify each possible option

and then $(2)$ analyze each option by explaining the benefits$/$drawbacks of each option. Finally, $(3)$ make a

recommendation based on your analysis. $h$