Question 1

Question 1 (25 marks) Hang Hang Company provides interior design services to houses and apartments at the Peak. It uses a job- order system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by Hang Hang Company, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup. In 2019, the accountant of Hang Hang Company prepared the following budget for 2020: Percentage of Cost Total Cost Directly Traceable to Clients (%) Professional designers' salaries 4.850.000 85 Administrative staff salaries 1,080.000 60 Travelling expenses 350.000 85 Other operating costs 220,000 32 Total 6.500.000 There was no work in process at the beginning of January 2020. The partners of Hang Hang Company desire to make a $1,300,000 profit for the firm and plan to add a percentage markup on total cost to achieve the target profit. On 31 October 2020, Hang Hang Company completed work on a project for Peak No. 2. The costs incurred in relation to this project were: professional designers' salaries, $235,000; administrative staff salaries. $55,000; travelling expenses, $17,000; and other operating costs, $15,000. Required: (a) Determine the total budgeted overhead of Hang Hang Company for the year. (4 marks) (b) Calculate the predetermined overhead rate, based on total costs traceable to client jobs. (3 marks) (c) Compute the percentage of total cost Hang Hang Company will add to each job to achieve the target profits. (3 marks) (d) Determine the total cost of Peak No. 2 project. How much would Peak No. 2 be billed for services performed? (5 marks) (c) Actual manufacturing overhead by year-end totaled $1,500,000. Assume the applied overhead equals to the budgeted overhead. Hang Hang Company adjusts all under- and overapplied overhead to cost of goods sold. (i) Does the presence of under- or overapplied overhead at year-end indicate that the accountant made a serious error? Explain. (4 marks) (ii) Prepare the adjusting entry for the under- or overapplied overhead for the year. (3 marks) (f) Suggest three examples of "other operating costs" that might be directly traceable to Hang Hang Company. (3 marks) [Total for Question 1: 25 marks]