Reference no: EM132814517

Question - ABC Mfg. Company uses a job-order cost accounting system. This is the company's first month of operations (no beginning inventories). The company purchases $1,400 of raw materials, paying cash. The materials will be used on its various manufacturing jobs. $900 of raw materials are requisitioned for use on Job. #65, and $200 is requisitioned for Job #71. The remaining raw materials are still on hand. No other jobs are begun during the month.

ABC makes a payroll entry for the month. The total salary expense is $1,600, and it is paid in cash. Employee time sheets indicated $1,200 of wages went into Job #65, $100 of wages were traced to Job #71, and the remaining $300 of salary was for the company's salesperson.

During the month, the company paid indirect manufacturing expenses (supplies, insurance, etc.) amounting to $800.00. The company assigns overhead to jobs at the same time it assigns labor costs using a predetermined rate based on labor costs. For ABC, the overhead application rate is $.50 (fifty cents) of overhead for every $1.00 spent on wages.

Job #65 is completed, and transferred to Finished Goods Inventory, awaiting sale to a customer.

REQUIRED - Assuming there is no additional activity:

a. How much ($) will be in the Finished Goods Inventory account at month's-end. Show your work.

b. How much ($) will be in the Work-in-Process Inventory account at month's end. Show your work.

c. Assume the company prepares financial statements at the end of each month. Is the overhead allocated to the two jobs accurate? If not, indicate the difference between applied overhead and actual overhead, and whether overhead was underapplied or overapplied?

c. When applied overhead does not match actual overhead, what adjustment can be made to better assure that reported income is accurate? Explain.