Question 3: Cost flows in a job costing system; schedule of cost of goods manufactured; automation: manufacturer (15 marks)

Vision Pty Ltd, a manufacturer of fibre-optic communications equipment, uses a job costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $45 per machine hour is based on estimated manufacturing overhead costs of $3 600 000 and an estimated cost driver level of 80 000 machine hours.

Operations for the current year have been completed, and all the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from work in process to finished goods for the jobs completed in December, and the transfer of costs from finished goods to cost of goods sold for the jobs that have been sold during December.

Summarised data as at 30 November, and for December, are presented in the following table. Job numbers T11-007, N11-013 and N11-015 were completed during December. All completed jobs except Job number N11-013 had been turned over to customers by the close of business on 31 December.

Work in Process: December activity

Job numbers

Balance 30 November

Direct material

Direct labour

Machine hours

T11-007

$261 000

$ 4 500

$13 500

300

N11-013

165 000

12 000

36 000

1 000

N11-015

0

76 800

80 100

1 400

D12-002

0

113 700

60 000

2 500

D12-003

0

78 000

50 400

800

Totals

$426 000

$285 000

$240 000

6 000

Operating activity

Activity to 30 November

December activity

Actual manufacturing overhead incurred:

Indirect material

$375 000

$27 000

Indirect labour

1 035 000

90 000

Utilities

735 000

66 000

Depreciation

1 155 000

105 000

Total overhead

$3 300 000

$288 000

Other items:

Raw material purchases*

$2 895 000

$294 000

Direct labour cost

$2 535 000

$240 000

Machine hours

73 000

6 000

Account balances at beginning 1 January:

Raw material inventory*

$315 000

Work in process inventory

180 000

Finished goods inventory

375 000

Question:

1

How much manufacturing overhead would Vision have applied to jobs to 30 November?

2

How much manufacturing overhead would be applied to jobs by Vision during December?

3

Determine the amount by which the manufacturing overhead is over applied or under applied as at 31 December.

4

Determine the balance in Vision's finished goods inventory account on 31 December.

5

Prepare a schedule of cost of goods manufactured for Vision Pty Ltd for the year. (Hint:In calculating the cost of direct material used, remember that Vision includes both direct and indirect material in its raw material inventory account.)