FiberCom, Inc., a manufacturer of fiber optic communications equipment, uses a job order costing system. Since the
FiberCom, Inc., a manufacturer of fiber optic communications equipment, uses a job order costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate. The current annual rate of $15 per machine hour is based on budgeted manufacturing overhead costs of $1,200,000 and a budgeted activity level of 80,000 machine hours (the companyâ€™s estimated practical capacity). Operations for the year have been completed, and all of the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during December, the transfer of costs from Work in Process to Finished Goods for the jobs completed in December, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during December. Summarized data as of November 30 and for the month of December are presented in the following table. Jobs T11-007, N 11-013, and N 11-015 were completed during December. All completed jobs except Job N 11-013 had been turned over to customers by the close of business on December 31.
1. Explain why manufacturers use a predetermined overhead rate to apply manufacturing overhead to their jobs.
2. How much manufacturing overhead would FiberCom have applied to jobs through November 30 of the year just completed?
3. How much manufacturing overhead would have been applied to jobs during December of the year just completed?
4. Determine the amount by which manufacturing overhead is over applied or under applied as of December31 of the year just completed.
5. Determine the balance in the Finished-Goods Inventory account on December 31 of the year just completed.
6. Prepare a Schedule of Cost of Goods Manufactured for FiberCom, Inc. for the year just completed. (Hint: In computing the cost of direct material used, remember that FiberCom includes both direct and indirect material in its Raw-Material Inventory account.)
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