QUESTION 2

Ammara Manufacturing Company applies overhead on the basis of direct labour costs. The company estimates annual overhead costs will be RM1,520,000 and annual direct labour costs will be RM1,900,000. During the month of March, Ammara Company works on two jobs: AA161 and BB171. The summary data related to these two jobs are as follows.

Manufacturing Costs Incurred

Purchased RM108,000 of raw materials on account.

Factory labour of RM152,000 and RM8,000 for employer payroll taxes.

Manufacturing overhead of indirect materials and indirect labour for RM119,600.

Assignment of Costs

Direct materials: Job AA161 RM54,000 and Job BB171 RM42,000

Indirect materials: RM6,000

Direct labour: Job AA161 RM104,000 and Job BB171 RM52,000

Indirect labour: RM4,000

During the month, the company completed Job AA161 and sold it on account for RM300,000. Job BB171 was only partially completed.

Instructions:

(a) Compute the predetermined overhead rate. (2 marks)

(b) Journalize the March transactions. (13 marks)

(c) Determine the amount of under or over-applied manufacturing overhead by using the manufacturing overhead T-account. (3 marks)

(d) Prepare a journal entry to close any balance in the manufacturing overhead account to the cost of goods sold account. (2 marks)

[TOTAL 20 MARKS]