Question 2 - Week 3 (11 marks)

Bulla Ltd, which uses a job costing system, had one job in process at the start of the year: Job K1 ($78 000). The following information is available:

(i) The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $920 000 and 20 000 hours, respectively.

(ii) The company worked on three jobs during the first quarter (i.e. from 1st January to 31st March). Direct materials used, direct labour incurred and machine hours consumed were as shown in the following table:

Job Numbers K1

K2

K3

Direct Material

$ - 50 500 45 000

Direct Labour

$30000 23 000 65 000

Machine Hours

1000 600 2 000

(iii) Manufacturing overhead incurred during the first quarter was $275 000.

(iv) Bulla Ltd completed Job K1 and Job K3 during the first quarter. Job K3 was sold on credit, producing a profit of $30 000 for the company.

Required:

a) Calculate the companys predetermined overhead rate. (1.5 marks)

b) Calculate manufacturing overhead applied to production for the first quarter. (1.5 marks) c) Determine the cost of jobs completed in the first quarter. (4 marks)

d) Determine the cost of the jobs still in process at the end of the first quarter. (2 marks)

e) Describe how overhead may be under applied and give one reason for this. (2 marks)