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|
On Nov. 30th, 2017 Jim’s had the following jobs in work in process inventory:
|Job #||Description||Quantity||Accumulated cost|
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|
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.
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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