The Big Ship Manufacturing Company manufactures custom made ships.The company utilizes a job order cost system based upon normal costs to cost each job.There are two direct cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead), which is allocated on the basis of direct labor costs.Budgeted overhead for the period totaled $2,160.Budgeted direct labor for the period was 500 hours of work totaling $1,350.

The following information is available as of the beginning of the current accounting period:

Inventories, December 31, 2013

Materials control.................................................................................................... 100

Work in process:

Job No. 2............................................................................. 35

Job No. 3............................................................................. 35

Finished goods control

Job No. 1........................................................................... 500

During the current period, the company work on four ships and completed three of them.The following information is available for 2014.

Direct materials and supplies purchased on account............................................................ $800

Direct materials used

Job No. 2..................................................................................... $185

Job No. 3....................................................................................... 210

Job No. 4......................................................................................... 75

Job No. 5....................................................................................... 240

Indirect materials issued to various production departments................................................... 100

Direct manufacturing labor

Job No. 2....................................................................................... 300

Job No. 3....................................................................................... 450

Job No. 4....................................................................................... 110

Job No. 5....................................................................................... 440

Indirect manufacturing labor incurred by various departments............................................... 900

Depreciation on building and manufacturing equipment........................................................ 500

Miscellaneous manufacturing overhead incurred by various departments............................... 550

Manufacturing overhead allocated .......................................................................................... ?

Cost of goods manufactured.................................................................................................... ?

Jobs 2, 3, and 5 were completed during the period

Revenues............................................................................................................... 4,020

Cost of goods sold.................................................................................................................. ?

Jobs 1, 2 and 5 were sold during the period

Administrative expense....................................................................................................... 600

At year-end, the company disposes of any amounts of over- or under-applied overhead by writing off the amount to cost of goods sold account.

Required:

1. Calculate the predetermined overhead rate.
2. Prepare the journal entries for Big Ship to record the transactions for the period.
3. Post the information to t-accounts
4. Show COGS, gross margin, and operating income (after adjustment)

Answer rating: 100% (QA)

Step 1 Calculate the Predetermined Overhead Rate The predetermined overhead rate is calculated by dividing the budgeted manufacturing overhead by the budgeted direct labor cost Predetermined Overhead ... View the full answer