Question 3: Cost behavior; engineered cost; committed and discretionary costs: manufacturer (10 Marks)

HappyDaze T-shirts manufactures and prints customised designs on T-shirts. Below is a list of some of their major costs.

(a)Cost of daily radio advertising on the local community radio station.

(b)Cost of the fabric used to make the T-shirts.

(c)Cost of the ink used in the designs.

(d)Salary of the managing director.

(e)Wages of the production employees who sew and print the T-shirts.

(f)Cost of movie tickets provided for the Employee of the Month award each month.

(g)Depreciation of the sewing machines, calculated on a units of production basis.

(h)Cost of electricity used in the factory building.

(i)Rent of the building.

(j)Wages of the staff who package the T-shirts.

(k)Cost of sewing machine maintenance.

(l)Cost of the new advertising sign at the front of the factory.

(m)Cost of the company car used by the managing director.

Required:

For each cost:

1Indicate whether it is fixed or variable.

2If the cost is variable, indicate whether it is an engineered cost. Explain why.

3If the cost is fixed, indicate whether it is committed or discretionary. Explain why.

Question 4: Cost of goods manufactured; overapplied or underapplied overhead; journal entries (10 Marks)

Cool Cooking Tools Ltd, manufacturer of gourmet cooking utensils, uses job costing. Manufacturing overhead is applied to production at a predetermined overhead rate of 150 per cent of direct labour cost. Any overapplied or underapplied manufacturing overhead is closed to cost of goods sold at the end of each month. Additional information:

Job SR22, consisting of ceramic spoon rests, was the only job in process on 31 January, with accumulated costs as follows:

Direct material$4000

Direct labour2000

Applied manufacturing overhead3000

Total$9000

Jobs BS67, TR29 and GT108 were started during February.

Direct materials requisitions during February totalled $26 000.

Direct labour cost of $20 000 was incurred during February.

Manufacturing overhead incurred in February was $32 000.

The only job still in process on 28 February was job number GT108, with costs of $2800 for direct material and $1800 for direct labour.

Required:

1Calculate the cost of goods manufactured for February.

2Calculate the amount of overapplied or underapplied overhead to be closed to cost of goods sold on 28 February.

3Prepare journal entries to record the events described in requirements 1 and 2.