AC designs and manufactures electronic components for use in sophisticated equipment. These components have applications in the manufacture of weapons. There are two manufacturing departments, X and Y, in the company. Department X carries out product design and preparation of materials for the components. Department Y assembles and finishes the production with highly automated machinery and equipment. Direct labour consists of designers in Department X and skilled testers in Department Y. During the year 2012, direct labour cost is $80 per hour. The company uses job-order costing and costs its products with normal costs. Factory overhead costs (FOH) are charged to the jobs with plant-wide application rate based on direct labour hours (DLH). Factory overheads under or over applied are closed to cost of goods sold at the end of each quarter.

AC bids for commercial jobs in through open tenders. In addition, AC takes on special assignment jobs from the Ministry of Defence. The company bills its customers only when jobs are completed and delivered. For Ministry of Defence jobs, the government allows AC to bill at total product costs for the jobs plus a 15% mark-up. Appended below are cost data for the three jobs that AC worked on during the 1st quarter of 2012.

Cost of beginning inventory as at 1 January 2012:

Job No	DM	DL	Factory Overhead	Total Cost
A111	$1,400	$3,200	$4,000	$8,600

Cost incurred during the 1st quarter of 2012:

Job No	DM	DL
A111	$6,600	$36,000
A112	$8,300	$112,000
A113	$1,300	$4,000

Estimated data for the year 2012 are as follows:

	Department X	Department Y	Total
Est FOH	$2,000,000	$3,500,000	$5,500,000
Est DLH	40,000	10,000	50,000

Job A111 was awarded by the Ministry of Defence for the design and manufacture of a special chip for a new gun. Jobs A111 and A113 are successful tenders with bid prices of $99,900 and $129,000 respectively. As at end of the 1st quarter of 2012, Jobs A111 and A112 were completed but only Job A111 was delivered and billed. Job A113 is only expected to be completed in the 2nd quarter. There was no direct materials inventory as at 1st Jan and 31st March 2012. Actual factory overhead costs incurred for the quarter amounted to $218,600.

AC managers are paid basic salary plus performance bonus linked to the profit of the company.

At the quarterly meeting held in early April 2012, the general manager of the company proposed to use machine hours (MH) instead of direct labour hours for plant-wide factory overhead application.

He tabled some data on machine hours provided by engineers for discussion, as follows:

Estimated machine hours for the year 2012:

	Department X	Department Y	Total
Est MH	5,000	50,000	55,000

Actual machine time used during the 1st quarter of 2012:

Job No	Total MH
A111	490
A112	2,900
A113	50

(a) Compute the costs of work-in-process and finished goods as at 31st March 2012.

(b) Compute the gross profit for the 1st quarter of 2012.

(c) Prepare all necessary journal entries to record the following transactions. Journal narrations are not required.

(1) The incurrence of direct material and factory overhead costs for the 1st quarter of 2012.

(2) The flow of direct materials, direct labour and factory overhead costs to work-inprocess, finished goods and cost of goods sold during the 1st quarter of 2012.

(3) The delivery of job(s) completed in the 1st quarter of 2012.

(4) The closing of under or over applied factory overhead as at end of 1st quarter, 2012.