Question 1 Top Hats Ltd manufactures all types of custom-made premium head wears and hats for all types of occasions. It uses a job-costing system and applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totalled $1,600,000. It has a maximum capacity of 400,000 machine hours. However, it is budgeted to be able to use 80% of this capacity during this period. On 31 July, Top Hats Ltd has the following balances: Work in process inventory Job number 211 Job number 212 Raw materials inventory Finished goods inventory Job number 210 $22,500 $10,775 $16,700 $28,750 In August, the following occurred: (1) Raw materials purchased on credit $6,050 (2) Raw materials requisitions Job number 211 Job number 212 Job number 213 Indirect materials (used in production) $1,275 $750 $3,100 $750 (3) Machine hours, direct labour hours and wages for factory employees Job number Machine hours Labour hours Wages 211 3,000 2,900 $30,600 212 1,100 900 $10,800 213 4,875 3,575 $50,125 Indirect labour 750 $7,350 (4) Other overhead incurred: Depreciation - machineries Depreciation - delivery vans Salaries - production Salaries - sales and administration Other factory costs Other selling and administration costs $5,000 $500 $12,500 $8,750 $19,500 $12,000 (5) Spoilage & reworked costs Job number 211 Job number 212 Normal spoilage with estimated disposal selling price of $75 was incurred. Normal spoilage amounting to $88 and abnormal spoilage of $38 were incurred. Rework cost of $65 was incurred. O Job number 213 (6) Job number 211 and Job number 212 were completed during the month. (7) Job number 210 was sold for cash at a mark-up of 30% on cost while Job number 211 was sold on credit at a price that allow the company to earn a gross profit margin of 20%. Required: (a) Compute the pre-determined overhead rate. (3 marks) (b) Calculate the followings: (i) Raw materials inventory as at 31 August. Work in process as at 31 August. (iii) Finished goods inventory as at 31 August. (iv) Selling price for Job number 210 and Job number 211. (16 marks) (c) Prepare the necessary journal entries to describe and summarise the transactions for August. Please show each job separately for the work in process inventory accounts only. Narrations can be ignored. (17 marks) (d) Compute the over-applied or under-applied overhead for August. (5 marks) Explain how the over-applied or under-applied overhead should be treated. (4 marks) Provide the necessary journal entries to close off the balance in the overhead control account assuming: (i) The overhead variances are not significant. (ii) The overhead variances are significant. Provide your final answer to the nearest dollar
