The ledger of Custer Company has the following work in process account.
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Work in Process—Painting
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| 5/1 |
Balance |
4,670 |
5/31 |
Transferred out |
? |
| 5/31 |
Materials |
5,970 |
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| 5/31 |
Labor |
4,160 |
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|
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| 5/31 |
Overhead |
2,250 |
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| 5/31 |
Balance |
? |
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Production records show that there were 450 units in the beginning inventory, 30% complete, 1,410 units started, and 1,420 units transferred out. The beginning work in process had materials cost of $2,960 and conversion costs of $1,710. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.
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Part 2
Wilkins Inc. has two types of handbags: standard and custom. The controller has decided to use a plantwide overhead rate based on direct labor costs. The president has heard of activity-based costing and wants to see how the results would differ if this system were used. Two activity cost pools were developed: machining and machine setup. Presented below is information related to the company’s operations.
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Standard
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Custom
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| Direct labor costs |
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$54,900 |
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$112,000 |
| Machine hours |
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1,360 |
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1,310 |
| Setup hours |
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97 |
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410 |
Total estimated overhead costs are $302,200. Overhead cost allocated to the machining activity cost pool is $199,400, and $102,800 is allocated to the machine setup activity cost pool.
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