Reference no: EM13501489

Introduction

Albatross Packaging Corporation began producing cardboard boxes 40 years ago.  Those boxes were a generic packaging made for a variety of different customers.  Over the past 3 years, the company began making specialty made-to-order packaging.  Currently, the company is producing approximately 15,000,000 units of the generic cardboard box in production runs of 500,000 units each.  The specialty boxes are being produced in batches of 10,000 units to 125,000 units with all jobs manufactured per specifications provided by customers.  Albatross Packaging Corporation accounts for the flows of the manufacturing costs for both the generic boxes and for the specialty boxes using a job order cost system.   

Overhead application

Overhead is applied based on direct labor costs.  At the beginning of the current year, the Corporation estimated that total overhead would be $6,225,000 and total direct labor costs to be $4,000,000.  Actual overhead costs for the month of February were $350,000.  Any under/over applied overhead is assumed to be immaterial and is applied to cost of goods sold

Jobs in Work in Process

At the beginning of February, the Corporation had two specialty jobs and one generic job in work in process.  Six additional jobs were started during the month (5 specialty and 1 generic) and a total of 8 jobs were transferred to finished goods inventory.  Information on the number of units in each job and the percentage of completion added during the months are presented in the Cost schedule presented below.

Cost Information

The unit cost information for February has been provided below.  Apply the overhead to each job at the end of the month's activities.

 

Costs per unit	Material	Direct Labor
Generic	$0.15	$             0.24
Specialty	$0.20	$0.40

Note that material costs are all added at the beginning of the process.  Direct labor and overhead are assigned throughout the manufacturing process.  Any jobs in WIP that are incomplete at the end of the period have the appropriate amount of overhead applied at the end of the accounting period.

The first and second Generic jobs and Jobs 18, 19, 20, 21, 22 and 23 were completed and transferred to finished goods by the end of the month.  There were no beginning finished goods and no ending finished goods inventory for February.  

By the end of the month, both Generic jobs and all of the specialty jobs had been sold and delivered.  Each specialty job is priced to sell at $2.00 per unit.  The generic units are sold at $1.25 each.

Costs in beginning WIP and incurred during current month:

 

Beginning	percent complete	Units	Materials	DL	OH
Generic	45%	500,000	75,000	54,000	84,038
Job 18	30%	12,500	2,500	1,500	2,334
Job 19	70%	25,000	5,000	7,000	10,894
Costs added:
Generic	55%	500,000
Job 18	70%	12,500
Job 19	30%	25,000
Generic	100%	500,000
Job 20	100%	20,000
Job 21	100%	10,000
Job 22	100%	15,000
Job 23	100%	35,000
Job 24	60%	75,000

 

Required:

1.                  Calculate the predetermined overhead rate for the current year and use this rate to apply overhead to the jobs that are worked during February.  Compute the total amount of overhead applied during the month, indicate whether this overhead is under or over applied and then prepare the adjusting entry to move the over/under overhead to COGS.

2.                  Prepare job cost sheets showing the cost assigned to each job completed during the month.  Cost sheets may be prepared as a schedule showing the detail to include the beginning balances of each job, the costs added during the period and the ending cost of each job. 

3.                  Show also the ending balances for month for all of the inventory accounts and any other relevant accounts.  This should include the inventory accounts, the overhead control account, and cost of goods sold.  Be sure to include the beginning inventory values in each inventory account.

4.                  Prepare a schedule showing the total cost of each of the jobs finished during the month of February and a breakdown of the per unit cost for each job that was moved to the Finished Goods Inventory.  In the detail, show the unit direct material, direct labor and manufacturing overhead applied.