The management for April Co. has a job costing system with two direct cost categories (direct materials
Question:
The management for April Co. has a job costing system with two direct cost categories
(direct materials and direct manufacturing labour) and one manufacturing overhead cost pool, that is
allocated based on direct labour costs.
The annual budget for the plant is as follows:
Manufacturing overhead costs $250,000
Direct labour hours 30,000 hours
Direct labour costs $400,000
Machine hours 30,000 hours
a) Compute the traditional manufacturing overhead rate using this traditional system. (1 mark)
b) The actual information for the year is as follows:
Manufacturing overhead costs $270,000
Direct labour hours 31,000 hours
Direct labour costs $385,000
Machine hours 35,000 hours
Based on the allocation method used by April Co., record the journal entry for the
Manufacturing overhead allocated in the space below.(2 marks)
Account Name Debit Credit
c) Management follows the write-off method to dispose of any over or under-allocated
manufacturing overhead.Record the journal entry based on the write-off method in the space below. (3 marks)
Year end balances (before
proration)
Cost of Goods sold $300,000
Finished Goods $150,000
WIP Control $65,000
Account Name Debit Credit
d) Management is considering using other allocation methods. Using the balances in c), allocate the over/under allocated overhead using the proration method and prepare the journal entry to record the allocation. (3 marks)
Account Name Debit Credit
e) Considering your results in c) and d) above, specify which of these two methods would you recommend to management, and explain why. (1 mark)