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 i) Requisitioned direct materials and used direct labour in manufacturing Direct Labour $61,200 Direct Materials $70,200 Job 551 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 vii)Allocated overheads to jobs at the predetermined rate ix) Units completed: 551, 552 & 554 x) Sold units 551 & 554 (billed customers at a margin of 33½% on sales)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
(a) Compute Elite’s predetermined manufacturing overhead rate for 2020.
(b) Calculate the total
(c) Using the total figures, record the above transactions in the general journal.
(d) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account, clearly showing the balance before closing the account. State the
(e) What is the balance in the Cost of Goods Sold account after the adjustment?
(f) Compute Elite’s gross profit earned on the jobs sold, after adjusting for the manufacturing overhead variance.
(g)
Answer questions a, b and c.
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