(Solved): Nicole Limited is a company that produces machinery to customer orders, using a normal job-order cost system. It applies manufact

Can somebody please help me answer question b and c? Thank you
P3-34A Nicole Limited is a company that produces machinery to customer orders, using a normal job-order cost system. It applies manufacturing overhead to production using a predetermined rate. This overhead rate is set at the beginning of each fiscal year by forecasting the years overhead and relating it to direct labour costs. The budget for 2016 was as follows: Direct labour Manufacturing overhead $1,800,000 900,000 5,775,00、 As at the end of the year, two jobs were incomplete. These were 1768B, with total direct labour charges of $110,000, and 1819C, with total direct labour charges of $390,000. On these jobs, machine hours were 287 hours for 1768B and 647 hours for 1819C. Direct materials issued for 1768B amounted to $220,000, and for 1819C they amounted to $420,000. Total charges to the Manufacturing Overhead Control account for the year were $897,000, and direct labour charges made to all jobs amounted to $1,583,600, representing 247,216 direct labour hours. There were no beginning inventories. In addition to the ending work in process just described, the ending finished goods inventory account showed a balance of $720,000. Sales for the year amounted to $6,201,355; cost of goods sold totalled $3,935,000, and sales, general, and administra- tive expenses were $1,857,870. The above amounts for inventories and the cost of goods sold have not been adjusted for any over- or under-application of manufacturing overhead to production. It is the companys practice to allocate any over- or under-applied overhead to inventories and the cost of goods sold. Instructions (a) Calculate the under-or over-applied manufacturing overhead for 2016 (b) Prorate the amount calculated in part (a) based on the ending balances (before prorating) of Work in Process, Finished Goods, and Cost of Goods Sold (c) Prepare an income statement for the company for the year. The inc ome tax rate is 40% (adapted from CMA Canada, now CPA Canada)

Nicole Limited is a company that produces machinery to customer orders, using a normal job-order cost system. It applies manufacturing overhead to production using a predetermined rate. This overhead rate is set at the beginning of each fiscal year by forecasting the years overhead and relating it to direct labour costs. The budget for 2016 was as follows: As at the end of the year, two jobs were incomplete. These were 1768B, with total direct labour charges of $110,000, and 1819C, with total direct labour charges of $390,000. On these jobs, machine hours were 287 hours for 1768B and 647 hours for 1819C. Direct materials issued for 1768B amounted to $220,000, and for 1819C they amounted to $420,000. Total charges to the Manufacturing Overhead Control account for the year were $897,000, and direct labour charges made to all jobs amounted to $1,583,600, representing 247,216 direct labour hours. There were no beginning inventories. In addition to the ending work in process just described, the ending finished goods inventory account showed a balance of $720,000. Sales for the year amounted to $6,201,355: cost of goods sold totalled $3,935,000: and sales, general, and administrative expenses were $1,857,870. The above amounts for inventories and the cost of goods sold have not been adjusted for any over- or under-application of manufacturing overhead to production. It is the company’s practice to allocate any over- or under-applied overhead to inventories and the cost of goods sold. Instructions (a) Calculate the under- or over-applied manufacturing overhead for 2016. (b) Prorate the amount calculated in part (a) based on the ending balances (before prorating) of Work in Process, Finished Goods, and Cost of Goods Sold. (c) Prepare an income statement for the company for the year. The income tax rate is 40%.

Expert Answer

 

a)

Budget for 2016:

Direct labor=$1,800,000

Manufacturing overhead=$900,000

Applied overhead rate=(900000/1800000)=0.5$ per $ of direct labor cost

Direct labor charges during the year=$1,583,600

Manufacturing Overhead applied=0.5*$1,583,600= $ 791,800

Manufacturing overhead cost incurred=$897,000

Under applied overhead cost=(897000-791800)= $ 105,200

b)Prorating of under applied overhead:

Work in process: CALCULATION OF Work in process balance at the end of the year is given below:

1768B 1819C Total
Direct labor $110,000 $390,000 $500,000
Direct material $220,000 $420,000 $640,000
Applied overhead(50% of direct labor) $55,000 $195,000 $250,000
Total Work in process $385,000 $1,005,000 $1,390,000

Finished goods inventory: Ending finished goods inventory=$720,000

Cost of goods sold:$3,935,000

The under applied overhead cost of $105,200 needed to prorate on work in process , finished goods and cost of goods sold.

CALCULATION OF PRORATING IS GIVEN BELOW:

PRORATING OF UNDERAPPLIED OVERHEAD
A B C D=C*105200
Amount Prorate factor calculation Prorate factor Prorated amount
Work in process inventory 1390000 (1390000/6045000)= 0.2299421            $24,190
Finished goods inventory 720000 (720000/6045000)= 0.1191067            $12,530
cost of goods sold 3935000 (3935000/6045000)= 0.6509512          $68,480
Total 6045000

c)INCOME STATEMENT:

Cost of goods sold=(3935000+68480)= $ 4,003,480

INCOME STATEMENT
Sales $6,201,355
Less:Cost of goods sold $4,003,480
Gross Profit $2,197,875
Less:Sales, general and admin. Expenses $1,857,870
Income before taxes $340,005
Income tax (40%) $136,002
NET INCOME AFTER TAXES $204,003
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