SALA Ltd manufactures furniture. The information below relates to a 1970s retro bookshelf that they make for
Question:
SALA Ltd manufactures furniture. The information below relates to a 1970’s retro bookshelf that they make for boutique buyers. They have a medium sized factory, and the information below only relates to the production run making the bookcases. The production manager Jess, decided to run three separate production runs of bookcases during July-December 2021. There are two manufacturing overhead allocation rates that are assigned to production. One is using the cost-driver of labour-hours and the other uses kilowatts of electricity used in a production run. Manufacturing overhead costs in January-June 2021 were budgeted to be $102,250.
The actual manufacturing overhead was $105,500. Allocated during that time was $108,250 of manufacturing overhead. For July - December 2021 it was estimated that manufacturing overhead per production run would total $7,360, there would be 50 labour hours per production run and that 15 machine hours would be used in each production run. Jess has budgeted that each time a machine runs for an hour it uses 100 kilowatts of electricity. The cost pool of total overhead is split between the two cost drivers equally.
The staff that work on the production run are paid $20 per hour, and each book case uses $35 of wood.
a) State at least three overhead costs that could be included in each overhead application rate cost pool. Explain if this would be a fixed or a variable cost and why it would be included in the electricity or labour cost pool.
b) Calculate the predetermined overhead application rates for a single production run that would be used for absorption costing purposes during June 30-December 31 2021.
c) In production run 1, 75 bookcases were made. In this production run 48 labour hours were used, and the machines ran for a total of 13 hours. What is the cost per bookcase? Show all workings.
d) At the end of December, 12 bookcases from production run 1 were in ending inventory. There had been no opening inventory. Calculate the cost of the finished goods (on the balance sheet) and the Cost of Goods Sold (on the income Statement) for production run 1.
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver