This problem covers concepts that were presented in Chapters 11 and 12 concerning job-order costing systems.

Custom Automobile Restoration Shop (CARS) is a small shop dedicated to high-quality restorations of vintage cars. Although it will restore an automobile that a customer already owns, usually the shop buys an old vehicle, restores it, and then sells it in a private party sale or at a classic-car auction. The shop has been in existence for 10 years, but for the sake of simplicity, assume it has no beginning inventories for 2017. Five automobile restoration projects were worked on during 2017. By the end of the year, four of these projects were complete and three of them had been sold. The following selected data are from CARS' 2017 budget:

Advertising........................................................................ $ 11,000

Direct materials.....................................................................200,000

Direct labor......................................................................... 180,000

Rent on office space.................................................................10,000

Rent on factory space...............................................................30,000

Indirect materials.................................................................... 15,000

Maintenance costs for factory equipment......................................... 5,000

Utilities costs for office space.......................................................1,900

Utilities costs for factory space......................................................4,000

Depreciation on factory equipment ...............................................12,000

Machine hours expected to be worked............................................ 4,000

Direct labor hours expected to be worked........................................ 6,500

The following information relates to production events during 2017:

■ Raw materials were purchased for $207,500.

■ Materials used in production totaled $200,400; $15,200 of these were considered indirect materials costs. The remaining $185,200 of direct materials costs related to individual restoration jobs as follows:

Job Number Direct Materials Cost

701.............................................$42,400

702.............................................. 34,700

703..............................................41,100

704..............................................38,800

705..............................................28,200

Labor costs incurred for production totaled $176,700. The workers are highly skilled craftsmen who require little supervision. Therefore, all of these costs were considered direct labor costs and related to individual restoration jobs as follows:

Job Number Direct Labor Cost

701.............................................$39,200

702.............................................. 41,100

703..............................................47,300

704..............................................29,600

705..............................................19,500

■ Paid factory rent of $29,000.

■ Recorded depreciation on factory equipment of $12,500.

■ Made $5,500 of payments to outside vendors for maintenance of factory equipment.

■ Paid factory utilities costs of $4,100.

■ Applied manufacturing overhead using a predetermined rate of $16.50 per machine hour. The 3,770 machine hours that were used relate to each job as follows:

Job Number Machine Hours Worked

701.............................................710

702.............................................840

703..............................................910

704..............................................890

705..............................................420

■ Completed all restoration jobs except Job 705 and transferred those projects to finished goods.

■ Sold three jobs for the following amounts:

Job Number Sales Price

701.............................. $128,000

702................................120,100

703............................... 112,500

■ Closed the Manufacturing Overhead account to transfer any over applied or under applied overhead to the Cost of Goods Sold account.

Required

a. Assume CARS had used direct labor hours (versus machine hours) as its cost driver. Compute its predetermined overhead rate.

b. Determine the ending balance in Raw Materials Inventory.

c. Determine the ending balance in Finished Goods Inventory.

d. Determine the ending balance in Work in Process Inventory.

e. Determine the costs of goods manufactured.

f. Determine the amount of Cost of Goods Sold.

g. Determine the amount of gross margin that was earned on Jobs 701, 702, and 703.

h. Determine the amount of over applied or under applied overhead that existed at the end of the year.

Though not required, you might find it helpful to organize the data using a horizontal financial statements model, although it will still be necessary to prepare a job cost sheet for each individual job.