Sound Design Ltd manufactures brass musical instruments for use by high school students. The company uses a job-order costing system, in which manufacturing overhead is applied on the basis of direct labor hours. The companys budget for the current year included the following estimates:

Budgeted total manufacturing overhead	$426,300
Budgeted total direct labor hours	20,300 hours

During March, the firm began two production jobs:

• Job Number T81, consisting of 76 trombones
• Job Number C40, consisting of 110 cornets

The events of March are described as follows:

1. 1,000 square meters of rolled brass sheet metal were purchased for $5,000 on credit
2. 400 kilograms of brass tubing were purchased on credit for $4,000.
3. The following requisitions were filled on 5 March:
   • Requisition number 112: 250 square meters of brass sheet metal at $5.00 per square meter for Job Number T81.
   • Requisition number 113: 1,000 kilograms of brass tubing at $10 per kilogram for job number C40.
   • Requisition number 114: 10 liters of valve lubricant at $10 per liter.
   • All brass used in production is treated as direct material. Valve lubricant is part of manufacturing supplies and considered an indirect material.
4. An analysis of labor time sheets revealed the following labor usage for March:
   • Direct labor: Job Number T81, 800 hours at $20 per hour
   • Direct labor: Job Number C40, 900 hours at $20 per hour
   • Indirect labor: general factory clean-up, $4,000
   • Indirect labor: factory supervisor salaries, $9,000
5. Depreciation of the factory building and equipment during March amounted to $12,000.
6. Rent paid in cash for warehouse space used during March was $1,200.
7. Electricity costs incurred during March amounted to $2,100. The invoices for these costs were received, but the bills were not paid in March.
8. March council rates and property taxes on the factory were paid in cash, $2,400.
9. Insurance cost covering factory operations for the month of March was $3,100. The insurance policy has been prepaid in February.
10. Cost of salaries for sales and administrative personnel paid in cash during March amounted to $8,000.
11. Depreciation on administrative office equipment amounted to $4,000.
12. Other selling and administrative expenses paid in cash during Match amounted to $1,000.
13. Job Number T81 was completed on 20^th of March.
14. Half the trombones in Job Number T81 were sold on credit during March for $700 each.

15. The 1^st of March balances in selected accounts are as follows:

    Cash	$10,000
    Accounts Receivable	$21,000
    Prepaid Insurance	$5,000
    Raw Material Inventory	$149,000
    Manufacturing Supplies Inventory	$500
    Work in Process Inventory	$91,500
    Finished Goods Inventory	$220,000
    Accumulated Depreciation: Buildings and Equipment	$102,000
    Accounts Payable	$13,000
    Wages Payable	$8,000

    Required:

    Prepare a report that addresses the following:

    1. Calculate the companys predetermined overhead rate for the current year. What is the purpose of a predetermined overhead rate? Why cant actual overhead costs be used for cost allocation?

    2. Prepare journal entries to record the events for March.

    3. Set up ledger accounts, and post the journal entries made in requirement 2.

    4. Calculate the over-applied or under-applied overhead for March. Prepare a journal entry to close this balance into cost of goods sold. Provide two causes of under-applied or over-applied overhead.

    5. Prepare a schedule of cost of goods manufactured and an income statement for March. Explain the purpose of a schedule of cost of goods manufactured.