Garrett Company makes sailboats. They use normal cost measurement. and accumulat
ID: 2427285 • Letter: G
Question
Garrett Company makes sailboats. They use normal cost measurement. and accumulate product costs using job costing. the following information is available about their most recent year. Raw Material, Beginning 800 Raw Material Ending 1.150 Raw Materials Purchased 60,000 Estimated Overhead 90,000 Actual Overhead 91,000 Estimated Machine Hours 1,800 Direct Labor Rate 12 per how Garrett had no balances in WIP Inventory or FG Inventory at the beginning of the current year. During the current year. Garrett started 3 jobs. Job 1-01 required 14,000 of direct materials, 2,000 labor hours, and 600 machine hours. Job 4-01 required 25,000 of direct materials, 2300 labor hours, and 920 machine hours Job 11-01 is tn process at the end of the year As of the end of the year. Job 11-01 has required 18,000 of direct materials. 850 labor hours, and 220 machine hours. During the year. 2,650 worth of indirect materials were actually used in production. b 1-01 was sold during the current year for a total of 120,000. Job 4-01 has a buyer, but the boat will not actually be sold until next quarter, so Garrett is carrying the cost of the boat in Finished Goods Inventory. A. Calculate Garrett's pre-determined overhead rate for the accounting period. B. Journalize the transactions that occurred during the year. Do not adjust for over or under applied overhead. Assume purchases arc paid in cash, and sales are made for cash. the company's beginning cash balance was 230,000. You will have to calculate expenditures for overhead made during the year. C. Post the journal entries in B, Calculate the amount of over or under applied overhead. D. Make the adjusting entry for the over or under applied overhead assuming the over or under applied overhead is immaterial. E. Calculate Garrett's gross margin.Explanation / Answer
A.Calculate the G’s predetermined overhead rate for the accounting period:
Details
Amount
Material cost (Note 1)
$ 59,650
Estimated Overhead
$ 90,000
Estimated Machine hours
1,800 hrs
Estimated per machine hour
$ 50.00
Direct labor rate per hour
$ 12.00
Note 1
Details
Amount
Raw material, Beginning
$ 800
Add: Raw material, Purchased
$ 60,000
Less: Raw material, Ending
$ 1,150
Material consumed
$ 59,650
Date
Account Titles and Explanation
Debit
Credit
Purchase
$ 60,000
Cash
$ 60,000
(Purchase of stock for cash)
Date
Account Titles and Explanation
Debit
Credit
Cash
$ 120,000
Sales
$ 120,000
(Sale of Job01-1 for cash)
Date
Account Titles and Explanation
Debit
Credit
Manufacturing overhead
(600 + 920 + 220) hours × $50)
$ 87,000
Cash
$ 87,000
(Machine hours used for the jobs)
Date
Account Titles and Explanation
Debit
Credit
Manufacturing overhead
(2,000 +2,500 +850) hours × $12)
$ 64,200
Cash
$ 64,200
(Direct labor hours used for the jobs)
Date
Account Titles and Explanation
Debit
Credit
Manufacturing overhead
$ 2,650
Inventories
$ 2,650
(Indirect material used for the jobs)
C.Calculation of Under or Over absorption overhead:
Details
Job1-01
Job4-01
Job11-01
Material cost
$ 14,000
$ 25,000
$ 18,000
Labor cost
(2,000 × $12)(2,500 ×$12)(850 × 12)
$ 24,000
$ 30,000
$ 10,200
Machine cost
(600 hrs × $50)(920 ×$50)(220×$50)
$ 30,000
$ 46,000
$ 11,000
Total cost
$ 68,000
$ 101,000
$ 39,200
Over absorption of machine cost
($91,000 /1740 hours) = $52.30
(600 hrs ×$52.30)(920×52.30)(220×52.30)
31380
48116
11506
Under absorption machine cost
(600 hrs × $50)(920 ×$50)(220×$50)
$ 30,000
$ 46,000
$ 11,000
Difference
$ 1,380
$ 2,116
$ 506
D.Entry for under or over absorption overhead:
Date
Account Titles and Explanation
Debit
Credit
Cost of goods sold
($1,380+$2,116+$506)
$ 4,002
manufactured overhead
$ 4,002
(Machine cost is under applies)
E. Calculate the Gross margin:
Gross margin = Sale price - cost of Job
=$120,000 - $31,380
=$88,620
Details
Amount
Material cost (Note 1)
$ 59,650
Estimated Overhead
$ 90,000
Estimated Machine hours
1,800 hrs
Estimated per machine hour
$ 50.00
Direct labor rate per hour
$ 12.00
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