Name
______________________________________________ Date _________________

There is
onequestion and two problems. Total assignment is worth 11 points.

Questions (1
point)

1. Why
must a company prepare a predetermined overhead rate when using job order cost
accounting?

P2.(6 points)

The following information is
available for Security Company, which produces special-order security products
and uses a job order cost accounting system.

April
30 May 31

Inventory Balances:

Raw Materials $43,000 $52,000

Goods in Process $10,000 $21,000

Finished Goods $63,000 $36,000

Other Information for the Month of
May:

Material inventory purchases (paid with
cash) were $210,000

Actual direct materials used during the
month $186,000

Actual direct labor recorded to jobs
during the month $265,000

Actual factory overhead incurred
included:

Indirect
materials $15,000

Indirect
labor $80,000

Other
factory overhead $120,000

Total
actual factory overhead $215,000

Other information:

The company uses a traditional costing
system and allocates overhead based on a single predetermined overhead rate of
70% of actual direct labor costs.

Sales for the month of May were
$1,400,000.

Note: When you have completed this
problem, you will calculate the gross profit that the company has earned on the
jobs that were completed in the month of May. You will“apply” or allocateoverhead
to the jobs based the predetermined overhead rate of 70% or 70% times actual
direct labor incurred by the company during the month.

YOU MUST SHOW YOUR WORK AND PROVIDE A DESCRIPTION
FOR EACH ITEM THAT WAS USED TO CALCULATE YOUR ANSWER TO RECEIVE CREDIT FOR EACH
QUESTION BELOW.

Compute the
following amounts for the month of May.

1. Cost of materials used relating to the raw
materials inventory account. Hint: This will be calculated in the same
manner as we did in chapter 14. Beginning raw materials inventory is the April
30 balance above.

2. CalculateCost of goods manufactured.
Hint: Start with Beginning GIP inventory, add DM, DL and ALLOCATED factory
overhead then subtract ending GIP inventory to arrive at cost of goods
manufactured for the month of May. This calculation is identical to what we did
in chapter 14 except that we are now “applying” or allocating factory overhead
using a predetermined overhead rate (rather than recording actual factory
overhead as we did in the previous chapter) to the work that was done this
month. Check figure:
COGM should be a number somewhere between $620,000 and $630,000.

3.CalculateCost of goods sold. Hint: This
will be calculated in the same manner as we did in chapter 14. Beginning
finished goods inventory is the April 30 balance above. Check figure: COGS sold for the month is a
number greater than $650,000 but less than $655,000.

4. Calculate Gross Profit for the month.
Calculate gross profit for the month. You better know how to do this. If not,
refer back to chapter 4 of the text regarding how to calculate gross profit. J

5. Determine
amount ofOverapplied or underapplied overhead. Determine whether the
company overapplied or underapplied overhead for the month. Compare actual factory
overhead costs incurred during the month verses the total factory overhead that
you should have applied during the month.