StrongOak Inc. is a wood products manufacturing firm located in British Columbia that uses job-order costing....

 

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StrongOak Inc. is a wood products manufacturing firm located in British Columbia that uses job-order costing. The company employs local residents and all of the factory workers are paid the same hourly rate. The company applies manufacturing overhead cost to jobs on the basis of direct labour hours worked. For the current year ending June 30, 2020, the company estimated that it would incur 8,500 direct labour hours and incur $680,000 in manufacturing overhead costs. The following transactions were recorded in the current fiscal year ended June 30, 2020: A. The opening raw materials inventory on July 1, 2019 was costed at $5,000 and of the raw materials that were issued into production during the current year 80% were direct materials. The ending raw material inventory on June 30, 2020 was $35,000 B. Actual costs for employee services were as follows: Assembly line (direct labour) workers - 9,000 hours $ Factory maintenance (indirect labour) $ 166,500 475,000 Selling and administration salaries $ 72,000 C. Advertising costs were incurred at $125,000 D. Property tax expense during the year, $32,000. Of this $19,000 related to the operation of the factory and the remainder to selling and administration. E. Depreciation recorded for the year was $220,000. (80% factory, the balance to selling and administration). F. The actual sales revenue for the year was $2,000,000 (all credit sales). G. The unadjusted cost of goods sold for the current year was $860,000 H. The unadjusted cost of goods manufactured for the current year was $900,000. Other information: (a) Other opening inventory balances on July 1, 2019 were: Finished goods inventory $10,000. Work-in-process inventory $26,000 (b) The corporate income tax rate is 14%. (c) The ending work in process inventory on June 30, 2020 consisted of only one item. Direct materials of $43,250 and direct labour of 500 actual direct labour hours had been incurred. REQUIRED: 1. Calculate the specific costs (direct materials, direct labour AND applied manufacturing overhead) comprising the unadjusted ending work in process inventory. (4 MARKS) 2. Record the current years' transactions (including the opening and closing balances) in these six "T" accounts: raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold, manufacturing overhead and operating expenses. (13 MARKS) 3. Prepare and post the journal entry to prorate any under or over applied manufacturing overhead to the relevant ledger accounts, assuming that the company follows IAS 2. Round to the nearest dollar. (6 MARKS) 4. Explain briefly why a pre-determined overhead rate is used to apply manufacturing overhead to jobs (and the WIP account) instead of using the actual overhead incurred in a period. (3 MARKS) RAW MATERIALS FINISHED GOODS MANUFACTURING OVERHEAD WORK IN PROCESS COST OF GOODS SOLD OPERATING EXPENSES StrongOak Inc. is a wood products manufacturing firm located in British Columbia that uses job-order costing. The company employs local residents and all of the factory workers are paid the same hourly rate. The company applies manufacturing overhead cost to jobs on the basis of direct labour hours worked. For the current year ending June 30, 2020, the company estimated that it would incur 8,500 direct labour hours and incur $680,000 in manufacturing overhead costs. The following transactions were recorded in the current fiscal year ended June 30, 2020: A. The opening raw materials inventory on July 1, 2019 was costed at $5,000 and of the raw materials that were issued into production during the current year 80% were direct materials. The ending raw material inventory on June 30, 2020 was $35,000 B. Actual costs for employee services were as follows: Assembly line (direct labour) workers - 9,000 hours $ Factory maintenance (indirect labour) $ 166,500 475,000 Selling and administration salaries $ 72,000 C. Advertising costs were incurred at $125,000 D. Property tax expense during the year, $32,000. Of this $19,000 related to the operation of the factory and the remainder to selling and administration. E. Depreciation recorded for the year was $220,000. (80% factory, the balance to selling and administration). F. The actual sales revenue for the year was $2,000,000 (all credit sales). G. The unadjusted cost of goods sold for the current year was $860,000 H. The unadjusted cost of goods manufactured for the current year was $900,000. Other information: (a) Other opening inventory balances on July 1, 2019 were: Finished goods inventory $10,000. Work-in-process inventory $26,000 (b) The corporate income tax rate is 14%. (c) The ending work in process inventory on June 30, 2020 consisted of only one item. Direct materials of $43,250 and direct labour of 500 actual direct labour hours had been incurred. REQUIRED: 1. Calculate the specific costs (direct materials, direct labour AND applied manufacturing overhead) comprising the unadjusted ending work in process inventory. (4 MARKS) 2. Record the current years' transactions (including the opening and closing balances) in these six "T" accounts: raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold, manufacturing overhead and operating expenses. (13 MARKS) 3. Prepare and post the journal entry to prorate any under or over applied manufacturing overhead to the relevant ledger accounts, assuming that the company follows IAS 2. Round to the nearest dollar. (6 MARKS) 4. Explain briefly why a pre-determined overhead rate is used to apply manufacturing overhead to jobs (and the WIP account) instead of using the actual overhead incurred in a period. (3 MARKS) RAW MATERIALS FINISHED GOODS MANUFACTURING OVERHEAD WORK IN PROCESS COST OF GOODS SOLD OPERATING EXPENSES

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1 Raw materials inventory Beginning inventory 5000 Direct materials issued to production 4000 Ending inventory 35000 Direct labor Assembly line worker... View the full answer