Reference no: EM132637227

CompuFurn Ltd manufactures furniture for computer work stations. The company uses a job costing system. The work in process inventory on 30 November consisted of the following jobs:

Job No.       Description.       Units.       Total cost

CC723       Computer caddy     20,000.   $ 900,000
CH291        Chair.                  15,000.    431,000
PS812          Printer stand      25,000       250,000
Total.                                                 $ 1,581,000

On 30 November, the company's finished goods inventory consisted of four items:

Item.                      Quantity and unit cost              Total cost

Computer caddy       7,500 units @ $64 each.      $ 480,000
Chair.                      19,400 units @ $35 each.     679,000
Printer stand.             21,000 units @ $55 each.   1,155,000
Desk.                       11,200 units @ $102 each.   1,142,000
Total.                                                             $ 3,456,400

At the end of November, the balance in CompuFurn's materials inventory account, which includes both raw materials and purchased parts, was $668 000. Additions to and requisitions from the materials inventory during December included the following.

Additions and requisitions.        Raw materials                 Purchased parts

Additions                                   $242,000                        $396,000

Requisitions:

Job CC723                                  51,000                              104,000
Job CH291                                   3,000                                10,800
Job PS812                                   124,000                            87,000
Job DS444                                    65,000                            187,000

CompuFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totals $4 500 000. The company planned to use 900 000 machine hours during this period, which is the firm's estimated practical capacity.

Through the first 11 months of the year, a total of 830 000 machine hours were used, and actual overhead amounted to $4 140,000.

During December, machine hours and labour hours consisted of the following:

Account.            Machine hours              Labour hours         Labour cost

CC723                 12 000.                   11 600                    $ 122 400
CH291.                 4 400.                     3 600                        43 200
PS812.                  19 500.                 14 300                       200 500
DS444.                  14 000.                  12 500                     138 000
Indirect labour.            -                        3 000                        29 400
Supervision.                -                         -                             57 600
Total.                     49 900                  45 000                         $ 591 100

The jobs completed in December and the unit sales for that month are as follows:

Job No.              Production items.            Quantity completed.                 Item Quantity shipped
CC723             ?Computer caddy                  20,000                    Computer caddy. 17,500
CH291.              Chair                                  15,000                         Chair 21,000
DS444.              Desk                                 5,000                        Printer stand 18,000
                         Desk                                   6,000

Required:

Question i. Explain when it is appropriate for a company to use a job costing system.

Question ii. Calculate the balance in CompuFurn's work in process inventory account as at 31 December.

Question iii. Calculate the cost of the chairs in CompuFurn's finished goods inventory as at 31 December.

Question iv.Actual manufacturing overhead incurred in December amounted to $252 000. Calculate CompuFurn's overapplied or underapplied overhead for the year.

Question v. Explain two alternative accounting treatments for overapplied or underapplied overhead balances when using a job costing system.