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Question 1

Solid Gates Pte Ltd manufactures all types of custom-made metal gates and fences for residential and industrial properties. It uses a job-costing system and applies manufacturing overhead based on machine hours. The company’s manufacturing overhead budget for the year totalled $2,400,000. It has a maximum capacity of 200,000 machine hours. However, it is budgeted to be able to use 80% of this capacity during this period.

On 30 September, Solid Gates Pte Ltd has the following balances:

Work in process inventory
Job number  38 $32,000
Job number    39 $18,000
Raw materials inventory  $13,350
Finished goods inventory
Job number  37 $89,250

In October, the following occurred:
(i) Raw materials purchased on credit: $31,250
(ii) Raw materials requisitions:

Job number 38: $6,500
Job number 39: $3,750
 Job number 40: $15,500
Indirect materials (used in production): $4,500

(iii) Machine hours, direct labour hours and wages for factory employees

(iv) Other overhead incurred:

(v) Spoilage & reworked costs:

Job number 38: Normal spoilage with estimated disposal selling price of
$1,200 was incurred.
 Job number 39: Normal spoilage amounting to $200 and abnormal
spoilage of $100 was incurred.
Job number 40: Rework cost of $500 was incurred.

(vi) Job number 38 and Job number 39 were completed during the month.

(vii) Job number 37 was sold for cash at a mark-up of 50% on cost while Job number 38 was sold on credit at a price that allows the company to earn a gross profit margin of 50%.

Required:

(a) Determine the pre-determined overhead rate.

(b) Determine the following:

(i) Raw materials inventory as at 31 October.

(ii) Work in process as at 31 October.

(iii) Finished goods inventory as at 31 October.

(iv) Selling price for Job number 37 and Job number 38.

(c) Present the necessary journal entries to describe and summarise the transactions for October. Please show each job separately for the work in process inventory accounts only. Narrations can be ignored.

(d) Determine the over-applied or under-applied overhead for October.

(e) Show how the over-applied or under-applied overhead should be treated.

(f) Present the necessary journal entries to close off the balance in the overhead control account assuming:

(i) The overhead variances are not significant.

(ii) The overhead variances are significant using approach 1 (Seminar 2 slide# 32).

Question 2

Peter Drucker, a renowned management consultant and author, once commented that “Every decision-making process must consider the cost.” This underscores the importance of having a good costing system in every business

Required:

Select an organization with which you are familiar with. Using your own words as much as possible, and in not more than 1,000 words:

(a) Give a brief description of the organisation – background, the organizational structure, the nature of business, the industry and the environment it is operating in, its products/services, etc.

(b) Identify the department that is responsible for providing the cost information and describe the costing system adopted and show how it is used to provide vital cost information for the management.

(c) Does the costing system meet the needs of the organization? Discuss.

Question 3

Many managerial decisions (such as pricing decisions, allocation of resources and cost management) require a good understanding of cost terminologies.

Based on the organization that you have chosen for Question 2 and in not more than 300 words, distinguish between:

Upstream and downstream costs.
Controllable and uncontrollable costs.

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