The following data refer to Solaris Power Ltd for the financial year ending 31 December 2021: Sales $5,900,000 Raw material inventory, 1 January 2021 160,000 Purchases of raw material 2,000,000 Raw material inventory, 31 December 2021 120,000 Direct labour cost incurred 1,400,000 Other selling and administrative expenses 240,000 Indirect labour cost (65% for factory; 35% for selling & admin) 800,000 Other manufacturing expenses 300,000 Depreciation of building (85% for factory; 15% for selling & admin) 400,000 Depreciation of equipment (90% for factory; 10% for selling & admin) 320,000 Income tax expense 80,000 Indirect material used (all for factory) 60,000 Insurance on factory & equipment (80% for factory; 20% for selling & admin) 100,000 Electricity (75% for factory; 25% for selling & admin) 200,000 Work in process, 1 January 2021 40,000 Work in process, 31 December 2021 60,000 Finished goods inventory, 1 January 2021 100,000 Finished goods inventory, 31 December 2021 140,000 The company uses normal costing and manufacturing overhead is applied at the rate of 120% of direct labour cost. Required: (a) Compute the manufacturing costs incurred for the current year. (b) Compute the cost of goods manufactured (COGM) for the current year. (c) Compute the manufacturing overhead variance.
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The following data refer to Solaris Power Ltd for the financial year ending 31 December 2021: Sales |
$5,900,000 |
|
Raw material inventory, 1 January 2021 |
160,000 |
|
Purchases of raw material |
2,000,000 |
|
Raw material inventory, 31 December 2021 |
120,000 |
|
Direct labour cost incurred |
1,400,000 |
|
Other selling and administrative expenses |
240,000 |
|
Indirect labour cost (65% for factory; 35% for selling & admin) |
800,000 |
|
Other manufacturing expenses |
300,000 |
|
|
400,000 |
|
Depreciation of equipment (90% for factory; 10% for selling & admin) |
320,000 |
|
Income tax expense |
80,000 |
|
Indirect material used (all for factory) |
60,000 |
|
Insurance on factory & equipment (80% for factory; 20% for selling & admin) |
100,000 |
|
Electricity (75% for factory; 25% for selling & admin) |
200,000 |
|
Work in process, 1 January 2021 |
40,000 |
|
Work in process, 31 December 2021 |
60,000 |
|
Finished goods inventory, 1 January 2021 |
100,000 |
|
Finished goods inventory, 31 December 2021 |
140,000 |
The company uses normal costing and manufacturing
Required:
(a) Compute the
(b) Compute the cost of goods manufactured (COGM) for the current year.
(c) Compute the manufacturing overhead variance.
(d) Compute the cost of goods sold (COGS) if the company closes overapplied or underapplied overhead cost into the cost of goods sold.
(e) Present Solaris Power Ltd’s Income statement for the year.
(f) Present the
(g) Present the journal entry to close off the balance in the manufacturing overhead account if instead of (d), Solaris Power Ltd closed off the manufacturing overhead variance by pro-rating the amount to the work in process, finished goods inventory and cost of goods sold.
(h) Explain the effect on profit between the two methods of closing off the manufacturing overhead described in (d) and (g).
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