QUESTION

Color Sofa provides upholstery services in Bandar Kijang. It uses a job order costing system to accept orders from the customers. The manufacturing overhead cost is absorbed based on direct labour hour. The budgeted manufacturing overhead cost for the month of May 2022 is RM53,500. Management expects a total of 10,700 direct labour hours will be used.

i) Discuss why companies use budgeted overhead costs rather than actual costs to compute predetermined overhead rate.

(4 marks)

ii) Calculate the predetermined overhead rate for Color Sofa for the month of May 2022.

(3 marks)

iii) Prepare journal entries to record the following transactions incurred during May 2022:

Jan	Particular
3	Purchase 150 metres of direct material from Bibah Textile on credit for RM2,111.
15	120 metres of direct material was requested from the store for production. It was bought for RM8.60 per metre.
18	The upholstery section has purchased 180 metres of indirect material which cost RM11.10 per metre from Ali Trading by cash.
21	Direct labour cost paid for the month of May amounted to RM1,700.
25	The depreciation cost for the delivery van for the month of May is RM890.
29	For the month of May, a total of 6,300 direct labour hours have been utilised.

(18 marks)

iv) At the end of May, the actual result of the companys operation indicates that the actual manufacturing overhead cost is RM50,000. Calculate and determine whether the total overhead cost is under or over absorbed. Explain.