Reference no: EM132457035
Problem - Saint Lucia Ltd builds custom luxury yachts. Each yacht is tailored to the individual customer and can range in sales price depending on the specifications of the customers. During the year Saint Lucia Ltd had three yachts in their production line, these were recorded as being Job #88, Job #89 and Job #90.
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Job#
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Direct Materials Used
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Direct Labour costs (at $35 per hour)
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88
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$4,380
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$7,000
|
|
89
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$3,500
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$14,000
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90
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$7,990
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$21,000
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The overhead allocation rate used by Saint Lucia Ltd is based on direct labour hours. The direct materials is $20 per kilogram. The budgeted overhead for the period was $6,500 based on a budgeted 1,000 direct labour hours for the period. There was an opening balance of $6,000 in the direct materials account.
The following transactions occurred during the period:
- Direct materials purchased on credit $12,870
- Advertising expense $1,500
- Depreciation expense on factory equipment $1,200
- Office supplies $760
- Factory supervisor's salary $4,230
- Indirect materials purchased on credit $890
- Office salaries $5,000
- Insurance expense on factory $1,800
- Depreciation on office equipment $780
During the period Job #88 was finished and sold, Job #89 was finished only, Job #90 was still in process at the end of the period. Saint Lucia Ltd uses a single work-in-process account for all jobs and uses a normal costing system with the cost driver being direct labour hours.
Required -
(1) Record the purchase on credit of direct materials.
(2) Record the direct materials used for Jobs #88, #89 and #90.
(3) Record the direct labour used for Jobs #88, #89 and #90.
(4) Record the overhead applied to Jobs #88, #89 and #90.
(5) Record the actual overheads for the period.
(6) Prepare the OH Control T-account and calculate the amount of OH variance for the period.
(7) Assume that for this company the OH variance is treated as being immaterial, record the journal entry to dispose of the OH variance.
(8) Jobs #88 and #89 where finished during the period. Record the journal entry to transfer these two jobs to finished goods.
(9) Job #88 was sold on credit during the period. Record the journal entry for this sale where Saint Lucia Ltd uses a 1888% mark-up on all its luxury yachts sold and round to the nearest dollar the sales amount.
(10) Prepare the Schedule of Cost of Goods Manufactured for Saint Lucia Ltd for the period ended December 31, 2026. Assume at the start of the period Beginning raw materials was $6,000, Beginning work-in-process balance was zero, Ending work-in-process balance contained Job #90.
(11) Prepare the Cost of Goods Sold budget for Saint Lucia Ltd for the period ended December 31, 2026. Assume beginning finished goods inventory was zero. Ending finished goods inventory included Job #89.
(12) Provide journal entries to record period costs.
(13) Prepare Income Statement for the period ended 31 December 2026.