Question

Michael Scott books tours for new bands, and arranges to print T-shirts and produce demo CDs to sell on the tour. Scott’s agency uses a normal costing system with two direct cost pools, labour and materials, and one indirect cost pool, general overhead. General overhead is allocated to each tour at 150% of labour cost. The following information relates to the agency for 2013:
1. As of June 1, there were tours in progress for two bands: Grunge Express and Different Strokes.
2. During June, both bands finished their tours.
3. New tours were started for three bands, As I Lay Dying, Ask Me Later, and Maybe Tomorrow. Of these bands, only Maybe Tomorrow finished its tour by the end of June. All costs incurred during the planning stage for a tour are gathered in a balance sheet account called “Tours In Process (TIP)”. When a tour is completed, the costs are transferred to an income statement account called “Cost of Completed Tours (CCT).”
The following cost information is for June:
Actual overhead in June was $2,500.
REQUIRED
1. Calculate the TIP for the end of June.
2. Calculate CCT for June.
3. Calculate underallocated or overallocated overhead at the end of June.
4. Calculate the ending balances in work-in-process and cost of goods sold if the underallocated or overallocated overhead amount is:
a. Written off to CCT.
b. Prorated using the ending balances (before proration) in TIP and CCT.
c. Prorated based on the overhead allocated in June in the ending balances of TIP and CCT (before proration).
5. Which of the methods in requirement 4 would you choose? Explain.


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  • CreatedJuly 31, 2015
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