Question
Turramurra Furniture Company manufactures specialist furniture for use with computers .It uses a FIFO costing system to allocate costs to Finished Goods and maintains its
Turramurra Furniture Company manufactures specialist furniture for use with computers .It uses a FIFO costing system to allocate costs to Finished Goods and maintains its financial records on a financial year which operates from 1 July 2016 to 30 June 2017 .
The Work in Process Inventory on 31 May 2017 consisted of the following :
Job No.DescriptionUnitsAccumulated Cost
SE523Storage Equipment20,000$860,000
PS612Printer Stand25,000300,000
CH421Chair15,000431,000
Total$1,591,000
The Finished Goods Inventory at 31 May 2017 was as follows :
Item DescriptionQuantity and Unit costAccumulated Cost
Storage Equipment7,500 units at $64 each$480,000
Printer Stand21,000 units at $55 each1,155,000
Chair19,400 units at $35 each679,000
Desk11,200 units at $102each1,142,400
Total$3,456,400
At the end of May 2017 the balance in Turramurra Furniture Company 's Material Inventory Account
was $579,000 .Purchases of Material Inventory during June were $622,000.
The Raw Material requisitioned for jobs during June were as follows:
Job No.$
SE523167,000
PS612221,000
CH42113,800
DS174(5000 desks)252,000
Turramurra Furniture Company applies manufacturing overhead on the basis of machine hours.The manufacturing overhead budgetfor the year totalled $4,500,000 and the company budgeted it would be using 900,000 machine hours .FromJuly 2016 to the end of May 2017 the company has used 835,000 machine hours and its actual manufacturing overhead has amounted to $4,105,000.
During the month of June 2017 machine hours ,labour hours and labour cost was as follows:
Job NoMachine HoursLabour HoursLabour Cost
SE52312,00011,600$ 122,400
PS61219,50014,300200,500
CH4214,4003,60043,200
DS17414,00012,500138,000
Indirect labour3,00029,400
Supervision57,600
Total49,90045,000591,100
The jobs completed in June 2017 and the unit sales during June 2017 were as follows:
Job NoDescriptionQuantity completedUnit sales
SES523Storage Equipment20,00017,500
PS612Printer Stand018,000
CH421Chairs15,00021,000
DS174Desks5,0006,000
Required:
(a)Describe the circumstances when a job order costing system should be used
(b)Calculate,showing working, the balance in Turramurra Furniture Company's Work in Process
Account at 30 June 2017.
(c)Calculate the cost of the chairs in the Finished Goods Inventory at 30 June 2017
(d)Actual manufacturing overhead incurred in June amounted to 217,000 .Calculate the over or underapplied overhead for the year.
(e) Outline two different treatments for the over or underapplied overhead balances when using a job order costing system.
( f)If the Turramurra Furniture Company considers that a variation of $40,000 in the over or underapplication of overhead is material and must be dealt with appropriately in the accounts
is the variation(over or underapplication of overhead) material? If it is what approach does the company use to adjust the over or underapplication of overhead?
(g) The company is concerned with its calculation and application of overhead and has asked you to advise if it should consider using Activity Based Costing as it is considering expanding its product range and its concerns about overhead application .
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