Question 1  ( Calculations would not be so straight forward )

Devlin Manufacturing Co. (Devlin) manufactures special purpose equipment for the construction industry. Each unit is built to customer specifications and thus Devlin only builds to order. Devlin uses a normal job costing system. Direct Labour is paid at $18 per hour, but the employees are only paid if they are working on jobs (i.e. they are not paid for down time). Manufacturing overhead is assigned to jobs by a predetermined rate on the basis of direct labour hours. The company incurred manufacturing overhead costs during two recent years (adjusted for price-level changes using current prices and wage rates) as follows:

At the beginning of year 3, Devlin has two jobs, which have not yet been delivered to customers. Job AB20 and Job AB25. Job AB20 was completed in year 2 on December 28. It is scheduled to be shipped to the customer on January 8 in year 3. Job AB25 is still in progress at the beginning of year 3. The predetermined rate in year 2 was $135 per direct labour hour.

Year 2 costs for Job AB20 & Job AB25

For all jobs worked during year 3 Devlin incurred $11,850,000 of Direct Material costs, 74,000 Direct Labour hours and $9,200,00 Actual Manufacturing Overhead costs in total.

Devlin uses the previous year’s actual overhead rate for the purpose of computing the predetermined overhead rate. There were four jobs that had not yet been shipped to customers at the end of year 3, Job AB30, AB31, AB35 and AB41.

Required:

a. What was the amount in Devlin’s beginning Finished Goods and Work in Process accounts for year 3? (2.5 marks)

b. Devlin incurred direct materials costs of $58,000 and used an additional 300 hours in year 3 to complete job AB25. What was the total final cost charged to job AB25? (2 marks)

c. Was the overhead over or under applied for year 3 and by what amount? (2 marks)

d. Devlin prorates any over/under applied overhead to the Work in Process Inventory, Cost of Goods Sold and Finished Goods Inventory accounts. Prepare the journal entry to prorate the over or under applied overhead you computed in (c). (5.5 marks)

e. Explain how the over/under applied overhead you calculated in part (c) occurred. Your explanation should make reference to Devlin’s cost-management system. (5 marks)

[Total Marks Q1: 17]

Question 2

PhysioSports Co. produces a special kind of body oil that is widely used by professional sports physio therapists and trainers. The oil is produced in three processes: Refining, Blending, and Mixing. The raw material oils are introduced at the beginning of the refining process. A "sea-breeze scent" material is added in the blending process when processing is 50% completed.

The following Work in Process account for the Blending Department is available for the month of July. The beginning Work in Process inventory for July contains $5,920 in material costs, and $1.54/unit in costs transferred in from the Refining Department. Devlin uses the weighted average method.

Required

a. Calculate the equivalent units of production for the Blending department.

(3 mark)

b. Calculate the unit costs in the Blending department for the month of July.

(4 marks)

c. Calculate the costs transferred out to the Mixing Department for July.

(1.5 marks)

d. Calculate the July 31 Work in Process Inventory balance.

(1.5 marks)

e. Why is the concept of equivalent units used in process costing? Explain (3 marks)

f. When using the weighted average method what would happen to the equivalent units, production cost per unit, costs transferred out and the ending inventory costs if the degree of completion of the ending inventory was underestimated? Explain (4 marks)

[Total marks Q2: 17]

Total marks 34.