Question 4 Kelveen Cline is in the business of producing customized T-shirts and currently uses a normal job order costing system. Each job represents an order from a customer. Customers typically provide specific designs for each order of T shirts. In the month of July 2019, Kelveen received the following summary report from the job cost sheets. The direct labour rate was $25 per hour. Factory overhead was applied at the rate of $15 per direct labour hour. Actual factory overheads in July were $20,000. $45,000 Beginning Inventories Direct Materials $32,000 Work in Process (Job #621) $23,000 Finished Goods (Job #618) $25,000 Materials Purchased Materials Issued to Production Direct Materials Job #621 $12,000 Job #722 $14,000 Job #723 $15,000 Indirect Materials Factory Labour Costs Direct Labour Job #621 $13,000 Job #722 $17,000 Job #723 $9,000 Indirect Labour Other Operating Costs Incurred: Selling and Administrative Expenses $12,000 $8,000 $12,820 Jobs #621 and #722 were completed in July. The company prices its jobs on a markup of 40% on cost. The company is considering using a normal activity-based costing (ABC) system to compute its job costs instead of the current single pre-determined overhead rate. The Company estimated it would incur $24,900 in manufacturing overhead costs in July. Estimated data relating to these activities for the month of July are given below: Activity Cost Pool Machine Setups Purchase Orders Product Design Total Estimated Estimated Overhead Costs Allocation base $2,700 45 machine setups $19,200 96 purchase orders $3,000 30 product changes $24,900 Job #621 Job #722 Job #723 10 15 20 Actual activity usage No. of machine setups No. of purchase orders No. of product changes 16 50 30 10 15 5 Required: (a) Using the current normal costing method, compute the over/under-applied manufacturing overheads. (6 marks) (b) Compute the total cost of Goods Sold before adjustment. (8 marks) (C) Using the ABC method, compute the ending balance of the WIP account. (7 marks) (d) Using Job#723, explain whether the change from the current system to the ABC system will have any significant impact, supporting your answer with any relevant calculations. (4 marks) Question 4 Kelveen Cline is in the business of producing customized T-shirts and currently uses a normal job order costing system. Each job represents an order from a customer. Customers typically provide specific designs for each order of T shirts. In the month of July 2019, Kelveen received the following summary report from the job cost sheets. The direct labour rate was $25 per hour. Factory overhead was applied at the rate of $15 per direct labour hour. Actual factory overheads in July were $20,000. $45,000 Beginning Inventories Direct Materials $32,000 Work in Process (Job #621) $23,000 Finished Goods (Job #618) $25,000 Materials Purchased Materials Issued to Production Direct Materials Job #621 $12,000 Job #722 $14,000 Job #723 $15,000 Indirect Materials Factory Labour Costs Direct Labour Job #621 $13,000 Job #722 $17,000 Job #723 $9,000 Indirect Labour Other Operating Costs Incurred: Selling and Administrative Expenses $12,000 $8,000 $12,820 Jobs #621 and #722 were completed in July. The company prices its jobs on a markup of 40% on cost. The company is considering using a normal activity-based costing (ABC) system to compute its job costs instead of the current single pre-determined overhead rate. The Company estimated it would incur $24,900 in manufacturing overhead costs in July. Estimated data relating to these activities for the month of July are given below: Activity Cost Pool Machine Setups Purchase Orders Product Design Total Estimated Estimated Overhead Costs Allocation base $2,700 45 machine setups $19,200 96 purchase orders $3,000 30 product changes $24,900 Job #621 Job #722 Job #723 10 15 20 Actual activity usage No. of machine setups No. of purchase orders No. of product changes 16 50 30 10 15 5 Required: (a) Using the current normal costing method, compute the over/under-applied manufacturing overheads. (6 marks) (b) Compute the total cost of Goods Sold before adjustment. (8 marks) (C) Using the ABC method, compute the ending balance of the WIP account. (7 marks) (d) Using Job#723, explain whether the change from the current system to the ABC system will have any significant impact, supporting your answer with any relevant calculations. (4 marks)
