Blumhardt's Barbeque Grills builds customized barbeque grills. All grills go through two production departments: Building (BLD) and Painting (PNT).
The company uses a normal, job-order costing system, and overhead is applied using departmental rates. The rate for BLD is $15 per machine hour (MH) and the rate for PNT is $12.75 per direct labor hour (DLH). Company policy is to close any over- or underapplied overhead directly to Cost of Goods Sold at the end of each month.
You will receive a packet containing job cost reports and copies of selected source documents for the month of February. At the beginning of the month, two jobs were already in production (#501 and #502). During February, two additional jobs were started (#503 and #504).
Required:
Complete the company's Job Cost Reports using the information provided in the packet.
Calculate the following amounts for the month of February:
Ending Work-in-Process balance
Cost of goods manufactured
Over-/underapplied overhead
Cost of goods sold AFTER adjusting for any over-/underapplied overhead
Prepare an income statement for February. The company's income tax rate is 35%
Answer the following questions:
Why would a business choose to use a predetermined (estimated) overhead rate instead of an actual overhead rate?
A more accurate method for disposing of over-/underapplied overhead is to prorate it among work-in-process inventories, finished goods inventories and Cost of Goods Sold. Do you think Blumhardt's Barbeque Grills is justified in using the direct write-off approach instead? Why or why not?