Question 1 (15 marks)

Part A

Sim Lim Company has the following closing balances for the year ended December 30, 2020.

Direct materials $15,000 Dr

Work-in-Process $34,500 Dr

Finished Goods $49,500 Dr

Cost of Goods Sold $74,500 Dr

Additional information is as follows:

Cost of materials purchased during 2020 $41,000 Cost of direct materials used in production during 2020 $47,000 Cost of direct labour used in production during 2020 $40,000 Cost of goods completed during 2020 $102,000

Factory overhead allocated to production during 2020 $48,000

Required:

1. Compute the opening balance of Work-in-Process. (2 marks)

2. Compute the opening balance of Finished Goods. (2 marks)

3. Discuss what you can observe about the flow of costs at Sim Lim Company. (4 marks)

Part B

MK Company has just finished its first year of operations. MK used a budgeted overhead rate to allocate manufacturing overhead to products. Actual manufacturing overhead incurred was $425,000 and $435,000 of overhead was allocated to Work-in-Process. Budgeted manufacturing overhead was $465,000.

Ending balances in the relevant accounts were:

Work-in-Process $40,000

Finished Goods $80,000

Cost of Goods Sold $680,000

Required:

1. Compute the amount of underallocated or overallocated overhead. (2 marks) 2. Explain why MK Companys underallocated or overallocated overhead has occurred and the options to dispose of it. (5 marks)