Jim’s Furniture Inc. manufactures furniture in NY. Jim’s uses job-order costing system and uses machine hours to allocate overhead costs. Estimated overhead for the year was $800,000 and estimated machine hours were 50,000 hours. Total machine hours used to the end of November were 45,000 hours. Total actual overhead to the end of November was $680,000. Raw materials inventory at the end of November was $400,000. Jim’s uses a first in first out basis for inventory and calculating COGS. Direct labor is paid $20 per hour in 2017. A summary of Jim’s finished goods inventory for the end of November (beginning of December) is shown below:
| Description | Quantity | Unit Cost | Total Cost |
| Chairs | 2,100 | $18 | $37,800 |
| Large tables | 1,340 | 56 | 75,040 |
| Small tables | 1,850 | 45 | 83,250 |
| Lounge chairs | 1,590 | 32 | 50,880 |
| Umbrellas | 860 | 28 | 24,080 |
On Nov. 30th, 2017 Jim’s had the following jobs in work in process inventory:
| Job # | Description | Quantity | Accumulated cost |
| 01 | Large tables | 3,000 | $90,000 |
| 02 | Lounge chairs | 4,000 | 42,000 |
| 03 | Umbrellas | 1,500 | 18,000 |
Mike’s also had the following production information for the month of December 2017:
| Job # | Description | Quantity started | Machine hours | Direct labor hours | Raw material used | Quantity completed |
| 01 | Large tables | 3,000 | 800 hrs | 200 hrs | $150,000 | 3,000 |
| 02 | Lounge chairs | 4,000 | 820 hrs | 780 hrs | 60,000 | 4,000 |
| 03 | Umbrellas | 1,500 | 300 hrs | 300 hrs | 37,500 | 0 |
| 04 | Small tables | 7,000 | 2,350 hrs | 2,400 hrs | 230,000 | 7,000 |
| 05 | Chairs | 7,500 | 700 hrs | 400 hrs | 120,000 | 0 |
| Total | 4,970 hrs | 597,500 |
Note: All raw materials can be directly traced to a furniture.
Jim’s sold 1,300 chairs, 3,500 large tables, and 4,600 lounge chairs in December 2017.
In December 2017, total materials purchased were $200,000, supervisors’ salary was $18,000, and machine depreciation was $44,000. There was no other manufacturing overhead occurred in this month.
Required:
1. Determine the ending balance of the following accounts at the end of December to help Jim’s prepare for the 2017 annual financial statements. (Hint: calculate the predetermined overhead rate to allocate overhead.) Please round to nearest dollar.
2. Calculate the amount of under- or over – applied overhead for 2017.
3. Discuss whether Jim’s should use direct labor hours instead of machine hours to apply their overhead, considering the “criteria” for choosing a driver for overhead allocation.
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