Exclusive Souvenirs Hut does customize, hand-crafted memorabilia for hotels, in which each batch of souvenirs is a job. 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. Exclusive’s predetermined overhead rate for 2020 was computed from the following data: Total estimated factory overhead $2,400,000 Total estimated direct labour cost $2,000,000 The WIP account given below relates to the activities of Exclusive Souvenirs for the month of June: WIP Inventory A/C June 1 Balance b/f $15,000 Direct Materials Used $123,000 Additional data: ▪ Total material requisitioned …………………………………$153,000 ▪ Manufacturing Labour Costs incurred ………………….$163,500 (75% represents direct labour) ▪ Other manufacturing overheads incurred …………...$94,275 ▪ Two jobs were completed with total costs of $183,000 and $105,000 respectively. They were sold to the hotel on account at a margin of 33 1/3% on sales. Required: c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account. What is the balance on the account before performing end of period closing entries? Is manufacturing overhead under- or over- absorbed? State the journal entries necessary to dispose of 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? e) Compute Exclusive Souvenirs’ gross profit earned on the jobs, after adjusting for the manufacturing overhead variance.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Exclusive Souvenirs Hut does customize, hand-crafted memorabilia for hotels, in which each batch of
souvenirs is a job. 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. Exclusive’s
predetermined overhead rate for 2020 was computed from the following data:
Total estimated factory overhead $2,400,000
Total estimated direct labour cost $2,000,000
The WIP account given below relates to the activities of Exclusive Souvenirs for the month of June:
WIP Inventory A/C
June 1 Balance b/f $15,000
Direct Materials Used $123,000
Additional data:
▪ Total material requisitioned …………………………………$153,000
▪
▪ Other manufacturing
▪ Two jobs were completed with total costs of $183,000 and $105,000 respectively. They were sold to the hotel on account at a margin of 33 1/3% on sales.
Required:
c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account. What is
the balance on the account before performing end of period closing entries? Is manufacturing
overhead under- or over- absorbed? State the
Assume that the manufacturing overhead variance is immaterial.
d) What is the balance in the Cost of Goods Sold account after the adjustment?
e) Compute Exclusive Souvenirs’ gross profit earned on the jobs, after adjusting for the manufacturing
overhead variance.
f) Determine the balance in the Work in Process Inventory account on June 30
g) State and explain three (3) differences between a
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