MA17 Problem: Job Order Costing – Eagleson Company

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MA17 Problem: Job Order Costing – Eagleson Company

 

Eagleson Company employs a normal job order costing system. Manufacturing overhead isapplied on the basis of machine hours using estimated manufacturing overhead costs of $1,200,000 and an estimated activity level of 80,000 machine hours. Eagleson's policy is to closethe over/under application of manufacturing overhead to cost of goods sold.Operations for the year ended November 30, 20x5, have been completed, and all of theaccounting entries have been made for the year except the application of manufacturing overheadto the jobs worked on during November, the transfer of costs from WIP to finished goods for the jobs completed in November, and the transfer of costs from finished goods to cost of goods soldfor the jobs sold during November. Jobs N11-007, N11-013, and N11-015 were completedduring November 20x5. All completed jobs except job N11-013 had been turned over tocustomers by the close of business on November 30, 20x5.Summarized data that have been accumulated from the accounting records as of October 31,20x5, and for November 20x5, are as follows:

WIP November 20x5 Activity Balance Direct Direct Machine Job # 10/3l/x5 Materials Labor Hours

 N11-007 $ 87,000 $ 1,500 $ 4,500 300 N11-013 55,000 4,000 12,000 1,000 N11-015 -0- 25,600 26,700 1,400D12-002 -0- 37,900 20,000 2,500D12-003 -0- 26,000 16,800 800Totals $142,000 $95,000 80,000 6,000 

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 Activity November Through 20x5Operating Activity Oct 31, 20x5 Activity

Manufacturing overhead incurredIndirect materials $ 125,000 $ 9,000Indirect labour 345,000 30,000Utilities 245,000 22,000Depreciation 385,000 35,000Total incurred overhead $1,100,000 $96,000Other itemsMaterial purchases* $965,000 $98,000Direct labor costs $845,000 $80,000Machine hours 73,000 6,000

 Account balancesat beginning of fiscal year 

Materials inventory* $105,000Work-in-process inventory 60,000Finished goods inventory 125,000* Material purchases and materials inventory consist of both direct and indirect materials. The balance of the materials inventory account as of November 30, 20X5, is $85,000.

 Required -

a. Eagleson Company uses a predetermined overhead rate to apply manufacturing overheadto its jobs. When overhead is accounted for in this manner, there may be over- or underapplied overhead.1. Explain why a business uses a predetermined overhead rate to applymanufacturing overhead to its jobs.2. How much manufacturing overhead would Eagleson have applied to jobs throughOctober 31, 20x5?3. How much manufacturing overhead would Eagleson apply to jobs during November 20x5?4. Determine the amount by which the manufacturing overhead is over- or underapplied as of November 30, 20x5.5. Over- or underapplied overhead must be eliminated at the end of the accounting period. Explain why Eagleson's method of closing over- or underapplied overheadto the cost of goods sold is acceptable in this case. b. Determine the balance in Eagleson Company's finished goods inventory at November 30, 20x5.c. Prepare a Schedule of Cost of Goods Manufactured for Eagleson Company for the year ended November 30, 20x5.

[CMA adapted)

 

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