Reference no: EM132100477

Problem - Maverick Wings, Inc. manufactures airplanes for use in stunt shows. Maverick's factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible. Since each plane has different features (such as its shape, weight, and color), Maverick uses a job order costing system to accumulate product costs.

At the end of 2013, Maverick's accountants developed the following expectations for 2014 based on the marketing department's sales forecast:

Budgeted overhead cost	$1,146,000
Estimated machine hours	58,000
Estimated direct labor hours	10,000
Estimated direct materials cost	$1,520,000

Maverick's inventory count, completed on December 31, 2013, revealed the following ending inventory balances:

Raw Materials Inventory	$250,000
Work in Process Inventory	$627,000
Finished Goods Inventory	$2,220,000

The company's 2014 payroll data revealed the following actual payroll costs for the year:

Job Title	Number  Employed	Wage Rate  per Hour	Annual  Salary per  Employee	Total Hours  Worked per Employee
President and CEO	1		$227,000
Vice president and CFO	1		$178,000
Factory manager	1		$40,200
Assistant factory manager	1		$31,900
Machine operator	5	$14.50		2,250
Security guard, factory	2		$20,500
Materials handler	2	$7.50		2,000
Corporate secretary	1		$36,600
Janitor, factory	2	$6		2,150

The following information was taken from Maverick's Schedule of Plant Assets. All assets are depreciated using the straight-line method.

Plant Asset	Purchase Price	Salvage Value	Useful Life
Factory building	$4,000,000	$150,000	20 Years
Administrative office	$650,000	$125,000	30 Years
Factory equipment	$2,000,000	$20,000	12 Years

Other miscellaneous costs for 2014 all paid in cash included:

Cost	Amount
Factory insurance	$12,100
Administrative office utilities	$5,500
Factory utilities	$30,300
Office supplies	$4,400

Additional information about Maverick's operations in 2014 includes the following:

• Raw materials purchases for the year amounted to $1,949,000. All purchases were on account.
• The company used $1,860,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials.
• Maverick applied overhead to Work in Process Inventory based on direct materials cost.
• Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory.
• Maverick uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000. (Note: This transaction requires two journal entries.)
• All sales were on account.

What was Maverick's predetermined overhead rate in 2014?

Prepare the journal entries to record Maverick's costs for 2014.

If Maverick chooses instead to prorate under- or overapplied overhead, what would the adjusted balances be in Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold for 2014?

Job 3827 was started and completed in 2014. The job required 1,000 machine hours, 700 direct labor hours, and $75,000 in direct materials to complete. What was the total cost of this job? Using Maverick's 80% markup, what sales price would be charged for this airplane?

If Maverick had chosen to use machine hours as its overhead application base, what would the rate have been in 2014?