Reference no: EM132772582

Question - Topsound Sdn Bhd makes car audio players using latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

Machine hours 37,500

Manufacturing overhead cost RM450,000

During the year 2020, a surplus of audio players on the market resulted in cutting back production and a build-up of audio players in the company's warehouse. The company's cost records revealed the following actual cost and operating data for the year:

Machine hours 30,000

Manufacturing overhead cost RM425,000

Inventories at year-end:

Raw Materials RM15,000

Work in process (includes overhead applied of RM18,000) RM50,000

Finished goods (includes overhead applied of RM90,000) RM250,000

Cost of goods sold (includes overhead applied of RM252,000) RM700,000

REQUIRED -

1) Compute the predetermined overhead rate.

2) Compute the underapplied or overapplied overhead.

3) Determine how much of the underapplied or overapplied overhead computed in (2) will be allocated to Work In Process (WIP), Finished Goods (FG) and Cost of Goods Sold (COGS) on the basis of the amount of overhead applied that remains in each account at the end of the year.

4) Prepare journal entry to record the underapplied or overapplied overhead computed in (3).

5) What If Analysis:

a) Repeat Requirement (1) to (3), assuming the estimated machine hours is 28,000 only.

b) Repeat Requirement (1) to (2), assuming the actual manufacturing overhead cost is RM362,000 (not RM425,000).

c) How would you adjust and record for the amount of underapplied or overapplied overhead computed in (b).

d) Prepare journal entry to record the underapplied or overapplied overhead computed in (c).

6) Explain why does a company apply predetermined overhead rates rather than assign actual manufacturing overhead costs to jobs.