Maverick Wings, Inc. manufactures airplanes for use in stunt shows. Maverick's factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible.
Since each plane has different features (such as its shape, weight, and color), Maverick uses a job order costing system to accumulate product costs.
At the end of 2013, Maverick's accountants developed the following expectations for 2014 based on the marketing department's sales forecast:
Budgeted overhead cost........ $1,050,000
Estimated machine hours........ 50,000
Estimated direct labor hours........ 10,000
Estimated direct materials cost...... $1,500,000

Maverick's inventory count, completed on December 31, 2013, revealed the following ending inventory balances:
Raw Materials Inventory $250,000
Work in Process Inventory $626,000
Finished Goods Inventory $340,000
The company's 2014 payroll data revealed the following actual payroll costs for the year:

The following information was taken from Maverick’s Schedule of Plant Assets. All assets are depreciated using the straight-line method.

Other miscellaneous costs for 2014 included:
Cost Amount
Factory insurance .........$14,000
Administrative office utilities..... $ 6,000
Factory utilities .........$32,000
Office supplies ..........$ 5,000

Additional information about Maverick's operations in 2014 includes the following:
• Raw materials purchases for the year amounted to $1,945,000.
• The company used $1,870,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials.
• Maverick applied overhead to Work in Process Inventory based on direct materials cost.
• Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory.
• Maverick uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000.

Use the information just given to answer the following questions:
a. What was Maverick's predetermined overhead rate in 2014?
b. Prepare the journal entries to record Maverick's costs for 2014.
c. Prepare the appropriate T-accounts for Raw Materials Inventory, Work-in-Process Inventory, Finished Goods Inventory, Manufacturing Overhead Control, Cost of Goods Sold, and Sales, and record Maverick's transactions for 2014.
d. Was manufacturing under- or overapplied in 2014? By how much?
e. Make the adjusting entry necessary to close the under- or overapplied overhead to cost of goods sold.
f. If Maverick chooses instead to prorate under- or overapplied overhead, how much would be allocated to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold for 2014?
g. Job 3827 was started and completed in 2014. The job required 500 machine hours, 300 direct labor hours, and $75,000 in direct materials to complete. What was the total cost of this job? Using Maverick's 80% markup, what sales price would be charged for this airplane?
h. If Maverick had chosen to use machine hours as its overhead application base, what would the rate have been in 2014? Why would that application base have been a logical choice forMaverick?

  • CreatedFebruary 21, 2014
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