Question 2 (26 marks, 43 minutes) Floats Inc. is a small boat manufacturing firm located in British Columbia that uses job-order costing. The company employs local residents and all of the factory workers are paid the same hourly rate. The company applies manufacturing overhead cost to jobs on the basis of direct labour hours worked. For the current year ending Sept. 30, 2020, the company estimated that it would incur 7,500 direct labour hours and incur $675,000 in manufacturing overhead costs. The following transactions were recorded in the current fiscal year ended Sept. 30, 2020: 1. The opening raw materials inventory on Oct. 1, 2019 was costed at $12,000 and ending raw materials inventory on Sept. 30, 2020 was $42,000. 90% of the raw materials that were issued into production during the current year were direct materials. Actual costs for employee services were as follows: a. Assembly line (direct labour) workers - 9,000 hours $166,500 b. Factory maintenance (indirect labour) $577,000 C. Selling and Administration salaries $ 75,000 3. Advertising costs were incurred at $140,000. 4. Property tax expense during the year was $27,000. Of this, $13,000 related to the operation of the factory and the remainder to selling and administration. 2. 5. Depreciation recorded for the year was $250,000. (80% factory, the balance to selling and administration). 6. The actual sales revenue for the year was $2,200,000 (all credit sales). The unadjusted cost of goods sold for the current year was $980,000. 8. The unadjusted cost of goods manufactured for the current year was $1,000,000. 7. Other Information: a. Other opening inventory balances on Oct. 1, 2019 were: Finished goods inventory $20,000 Work-in-process inventory $31,000 b. The corporate tax rate is 16%. c. The ending work in process inventory on Sept. 30, 2020 consisted of only one item. Direct materials of $43,250 and direct labour of 500 actual direct labour hours had been incurred. Required: 1. Calculate the specific costs (direct materials, direct labour and applied manufacturing overhead) comprising the unadjusted ending work in process inventory balance. (4 marks) Marks 2. Record the current year's transactions, including opening and closing balances, in the following 7 t-accounts. (13 marks) Marks WIP Finished Goods Raw Materials Dr. Cr. Dr. Cr. Dr. Cr. Selling and Admin Cost of Goods Sold Manufacturing Overhead Dr. Cr. Dr. Cr. Dr. Cr. Sales Dr. Cr. Question 2 (continued) 3. Prepare the journal entry to close the Manufacturing Overhead account in accordance with the guidance in IAS 2 to allocate over-applied or under-applied overhead. Post the journal entry to the t-accounts above. Round amounts to the nearest dollar. Show all calculations. (6 marks) Marks 4. Briefly explain why a pre-determined overhead rate is used to apply manufacturing overhead to jobs (and the WIP account) instead of using the actual overhead incurred in a period. (3 marks) 5 Marks Question 2 (26 marks, 43 minutes) Floats Inc. is a small boat manufacturing firm located in British Columbia that uses job-order costing. The company employs local residents and all of the factory workers are paid the same hourly rate. The company applies manufacturing overhead cost to jobs on the basis of direct labour hours worked. For the current year ending Sept. 30, 2020, the company estimated that it would incur 7,500 direct labour hours and incur $675,000 in manufacturing overhead costs. The following transactions were recorded in the current fiscal year ended Sept. 30, 2020: 1. The opening raw materials inventory on Oct. 1, 2019 was costed at $12,000 and ending raw materials inventory on Sept. 30, 2020 was $42,000. 90% of the raw materials that were issued into production during the current year were direct materials. Actual costs for employee services were as follows: a. Assembly line (direct labour) workers - 9,000 hours $166,500 b. Factory maintenance (indirect labour) $577,000 C. Selling and Administration salaries $ 75,000 3. Advertising costs were incurred at $140,000. 4. Property tax expense during the year was $27,000. Of this, $13,000 related to the operation of the factory and the remainder to selling and administration. 2. 5. Depreciation recorded for the year was $250,000. (80% factory, the balance to selling and administration). 6. The actual sales revenue for the year was $2,200,000 (all credit sales). The unadjusted cost of goods sold for the current year was $980,000. 8. The unadjusted cost of goods manufactured for the current year was $1,000,000. 7. Other Information: a. Other opening inventory balances on Oct. 1, 2019 were: Finished goods inventory $20,000 Work-in-process inventory $31,000 b. The corporate tax rate is 16%. c. The ending work in process inventory on Sept. 30, 2020 consisted of only one item. Direct materials of $43,250 and direct labour of 500 actual direct labour hours had been incurred. Required: 1. Calculate the specific costs (direct materials, direct labour and applied manufacturing overhead) comprising the unadjusted ending work in process inventory balance. (4 marks) Marks 2. Record the current year's transactions, including opening and closing balances, in the following 7 t-accounts. (13 marks) Marks WIP Finished Goods Raw Materials Dr. Cr. Dr. Cr. Dr. Cr. Selling and Admin Cost of Goods Sold Manufacturing Overhead Dr. Cr. Dr. Cr. Dr. Cr. Sales Dr. Cr. Question 2 (continued) 3. Prepare the journal entry to close the Manufacturing Overhead account in accordance with the guidance in IAS 2 to allocate over-applied or under-applied overhead. Post the journal entry to the t-accounts above. Round amounts to the nearest dollar. Show all calculations. (6 marks) Marks 4. Briefly explain why a pre-determined overhead rate is used to apply manufacturing overhead to jobs (and the WIP account) instead of using the actual overhead incurred in a period. (3 marks) 5 Marks