2024 – After a dispute concerning wages Orville Arson tossed an incendiary device into the Sparkle Company s record vault

After a dispute concerning wages, Orville Arson tossed an incendiary device into the Sparkle Company’s record vault.  Within moments only a few charred fragments were readable from the company’s factory ledger for the year ended December 31, 2005, as shown below:

 

Direct Materials			Manufacturing Overhead
+ Bal. 1/1    $8,000	—		+ Actual costs for 2005: $79,000	— applied overhead $85100
Material purchased 115000	Material used 106300
Bal 31/12 16700				Over-applied
				overhead             $6,100

 

Work in Process		Finished Goods		Cost of Goods Sold
+ Bal. 1/1   $7,200	—	+ Bal 1/1 $36000	—	+	—
D. Material   106300					Over-applied
D. Labor  92000	$ 280000	Cost of goods manufactured 280000	Cost of goods sold 295000	Finished goods 295000	overhead             $6,100
Mfg. overhead 85100
Bal 31/12 $10600		Bal. 12/31    $21,000		Cost of goods sold after adjustment 288900

 

To get ready for the end of the year audit by Deloitte & Touche, the company must reconstruct its activities for 2005.  You are the manager of internal audit, and must perform the task of reconstruction.  Sifting through the ashes and interviewing selected employees has turned up the following additional information: 

 

a.       The production superintendent states that manufacturing overhead cost is applied to jobs on the basis of direct-labor hours.  However, he does not remember the rate currently being used by the company.

 

b.      A charred piece of the payroll ledger, found after sifting through piles of smoking debris, indicates that 11,500 direct labor-hours were recorded for the year at $8 per hour.  The company’s Personnel Department has verified that as a result of a union contract, there are no variations in pay rates among factory employees.

 

c.       Cost sheets kept in the production superintendent’s office show that only one job was in process on December 31, at the time of the explosion.  The job had been charged with $6,600 in materials, and 500 direct-labor hours (at $8 per hour) had been worked on the job.

 

d.      According to the company’s purchasing agent, purchases of direct materials totaled $115,000 for the year.

 

e.       Last year’s balance sheet indicated that finished goods inventory totaled $36,000 on December 31, 2004.

 

f.       A log is kept in the finished goods warehouse showing all goods transferred in from the factory.  This log shows that the cost of goods transferred into the finished goods warehouse from the factory during 2005 totaled $280,000.    

 

f.   A log is kept in the finished goods warehouse showing all goods transferred in from the factory.  This log shows that the cost of goods transferred into the finished goods warehouse from the factory during 2005 totaled $280,000.

 

Required:

Determine the following amounts:

 (Hint: A good way to proceed is to bring the fragmented T-accounts up to date through December 31,    2005 by posting whatever transactions can be developed from the information given).  All of your supporting work must be shown and clearly labeled to receive credit for the case.  Attach you work to the back of this answer sheet.

 

1.   Overhead applied to work in process during 2005.                           __________________

2.   Predetermined overhead rate being used by the company.               _________________

3.   Work in process inventory, December 31, 2005.                              __________________

4.   Direct materials usage during June.                                                  __________________

5.   Direct materials inventory, December 31, 2005.                              ___________________

6.   Cost of goods sold for 2005 before adjustment for over-applied overhead. ____________

7.   Cost of goods sold for 2005 after adjustment for over-applied overhead._____________