Reference no: EM133038212

Question - Valentino Company uses a job order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct labour-hours. Last year manufacturing overhead and direct labour-hours were estimated at $50,000 and 20,000 hours, respectively, for the year. In June, Job #939 was completed. Materials costs on the job totalled $4,000 and labour costs totalled $1,500 at $5 per hour. At the end of the year, it was determined that the company worked 24,000 direct labour hours for the year and incurred $54,000 in actual manufacturing overhead costs.

Required -

a. Job #939 contained 100 units. What unit cost would appear on the job cost sheet?

b. What is the underapplied or overapplied overhead for the year?

c. Prior to closing the underapplied/overapplied overhead, cost of goods sold was $100,000, finished goods inventory was $20,000, and work in process was $10,000. If the underapplied/overapplied overhead is prorated to these accounts, how is Valentino Company's annual operating income impacted?

d. Looking forward to next year, Valentino Company management is considering the possibility of selling its products internationally. In order to meet the specific demands of offshore customers, adaptations to the production process would require the purchase of new equipment costing $100,000. Also, to sell outside of Canada, a new sales assistant would have to be hired at an annual cost of $50,000. Advise Valentino Company on how the $150,000 of additional costs would impact its total manufacturing overhead for next year.