lite Home Decor manufactures customized household furnishings. The company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. Elite expects to incur $2,205,000 of manufacturing overhead costs and estimated direct labour costs of $3,150,000 during 2020. At the end of Decem
Elite Home Decor manufactures customized household furnishings. The company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing
overhead based on direct labour cost.
Elite expects to incur $2,205,000 of manufacturing overhead costs
and estimated direct labour costs of $3,150,000 during 2020.
At the end of December 2019, Elite reported work in process inventory (Job 551) of $93,000.
The following events occurred during January - March 2020.
i) Purchased materials on account, $392,000
ii) Incurred manufacturing wages of $400,000
iii) Requisitioned direct materials and used direct labour in manufacturing
Direct Materials Direct Labour
Job 551 $70,200 $61,200
Job 552 $97,500 $115,600
Job 553 $105,300 $78,200
Job 554 $117,000 $85,000
iv) Issued indirect materials to production, $30,000
v) Charged indirect manufacturing wages to production, $60,000
vi) Depreciation of production machinery, $85,000
vii) Other manufacturing overhead costs incurred on units 551 to 554 amounted to $49,000
viii)Allocated
ix) Units completed: 551, 552 & 554
x) Sold units 551 & 554 (billed customers at a margin of 33⅓% on sales)
Required:
(a) Compute Elite’s predetermined manufacturing overhead rate for 2020. Calculate the total
(b) Using the total figures, record the above transactions in the general journal.
(c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account, clearly
showing the balance before closing the account. State the
the variance. Assume that the manufacturing overhead variance is immaterial.
(d) What is the balance in the Cost of Goods Sold account after the adjustment? Compute Elite’s gross profit earned on the jobs sold, after adjusting for the manufacturing overhead
variance
(e)
on March 31, the end of the quarter.
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