4.32 (LO 1, 2, 3, 4, 5, 6) Comprehensive problem

Maverick Wings, Inc. manufactures airplanes for use in stunt shows. Mavericks 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 2020, Mavericks accountants developed the following expectations for 2021 based on the marketing departments 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

Mavericks inventory count, completed on December 31, 2020, revealed the following ending inventory balances:

Raw Materials Inventory $75,800

Work in Process Inventory $626,000

Finished Goods Inventory $340,000

The companys 2021 payroll data revealed the following actual payroll costs for the year:

Job Title Number Employed Wage Rate per Hour Annual Salary per Employee Total Hours Worked per Employee

President and CEO 1 $225,000

Vice president and CFO 1 $178,000

Factory manager 1 $48,000

Assistant factory manager. 1 $35,000

Machine operator 4 $20.00 2,250

Security guard, factory 2 $25,000

Forklift operator 2 $15.00 2,000

Corporate secretary 1 $35,000

Janitor, factory 2 $12.00 2,150

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

Plant Asset Purchase Price Salvage Value Useful Life

Factory building $4,000,000 $150,000 20 Years

Administrative office $650,000 $125,000 30 Years

Factory equipment $2,000,000 $20,000 12 Years

Other miscellaneous costs for 2021 included:

Cost Amount

Factory insurance $14,000

Administrative office utilities $6,000

Factory utilities $32,000

Office supplies $5,000

Additional information about Mavericks operations in 2021 includes the following:

Raw materials purchases for the year amounted to $1,945,000.

The company used $1,924,000 in raw materials during the year. Of that amount, 80% was direct materials and 20% was indirect materials.

Maverick applied overhead to Work in Process Inventory based on direct materials cost.

Airplanes costing $2,870,000 to manufacture were completed and transferred out of Work in Process Inventory.

Maverick uses a markup of 150% to price its airplanes. Sales for the year were $7,250,000. (Note: This transaction requires two journal entries.)

Required Use the information is just given to answer the following questions:

a. What was Mavericks predetermined overhead rate in 2021?

b. Prepare the journal entries to record Mavericks costs for 2021.

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 Mavericks transactions for 2021. Calculate the ending balance in each account.

d. Was manufacturing under-or overapplied in 2021? 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 2021?

g. Job 3827 was started and completed in 2021. 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 Mavericks 150% 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 2021? Why would that application base have been a logical choice for Maverick?