Rad Design Ltd manufactures Rad carpentry tools. The company uses a job costing system in which

manufacturing overhead is applied on the basis of direct labour hours. The company$$s budget for the

current year included the following predictions:

Budgeted total manufacturing overhead $$645,000$

Budgeted total direct labour hours $32,250$

During March, the firm began two production jobs:

job number T$50,$ consisting of $90$ Trimmer

job number C$40,$ consisting of $145$ Coping saw.

The events of March are described as follows:

$-1000$ square metres of rolled Rad sheet metal were purchased on credit for $$11,000.$

$-400$ kilograms of Rad tubing were purchased on credit for $$7,300.$

The following material requisitions were filed on $5$ March:

$-$ requisition number $112$: $250$ square metres of Rad sheet metal @ $$7$ per square metre $($direct

material for job number T$50).$

$-$ requisition number $113$: $1000$ kilograms of Rad tubing @ $$15$ per kilogram $($direct material for job

number C$40).$

$-$ requisition number $114$: $10$ litres of valve lubricant @ $$2$ per litre. $($Valve lubricant is an indirect

material$)$

An analysis of labour time sheets revealed the following labour usage for March:

$-$ direct labour: job number T$50,1100$ hours @ $$23$ per hour

$-$ direct labour: job number C$40,1200$ hours @ $$23$ per hour

$-$ indirect labour: general factory clean$-$up$,$ $$4,650$

$-$ indirect labour: factory supervisory salaries, $$10,300$ Other costs:

$-$ Depreciation of the factory building and equipment during March amounted to $$13,300.$

$-$ Rent paid in cash for warehouse space used during March was $$1330.$

$-$ Electricity costs incurred during March amounted to $$2295$ The invoices for these costs were

received, but the bills were not paid in March.

$-$ March council rates and property taxes on the factory were paid in cash, $$2660.$

$-$ Insurance cost covering factory operations for March was $$3360$ The insurance policy had been

prepaid in February.

$-$ Costs of salaries and on$-$costs for sales and administrative personnel paid in cash during March

amounted to $$9300.$

$-$ Depreciation on administrative office equipment and space amounted to $$4650.$

$-$ Other selling and administrative expenses paid in cash during March amounted to $$2000.$

More information:

$-$ Job number T$50$ was completed in March.

$-$ Half the Trimmer in job number T$50$ were sold on credit during March for $$1100$ each.

The $1$ March balances in selected accounts are as follows:

Account Name $1$ March Balance

Cash $$12,000$

Accounts Receivable $$25,000$

Prepaid Insurance $$7,720$

Raw material Inventory $$149,000$

Manufacturing supplies inventory $$500$

Work in process Inventory $$112,000$

Finished Goods Inventory $$336,000$

Accumulated depreciation: building and

equipment $$102,000$

Accounts payable $$13,000$

Wages payable $$8,000$

 

 

Required:

$1.$ Calculate the company$$s predetermined overhead rate for the current year.

$2.$ Prepare journal entries to record the events of March.

$3.$ Set up ledger accounts, and post the journal entries made in requirement $2.$

$4.$ Calculate the overapplied or underapplied overhead for March. Prepare a journal entry to close this

balance into cost of goods sold.

$5.$ Prepare a schedule of cost of goods manufactured for March.

$6.$ Prepare a schedule of cost of goods sold for March.

$7.$ Prepare an income statement for March.

$8.$ Provide the management team of Rad Design Ltd with the issues could occur applying the current

traditional manufacturing overhead costing system.

$9.$ Analyse and describe the benefits of replacing Activity Base Costing $($ABC$)$ and write a proposal for Rad

Design Ltd to switch to ABC system.