Catalina Sails makes sails for small sailboats. It recently switched to activity

Question

Catalina Sails makes sails for small sailboats. It recently switched to activity-based costing from the department product costing method. The manager of Department Y, which manufactures the sails, has identified the following cost drivers and rates for overhead: Rate per Cost Driver Unit Activity Centers Materials handling Quality inspections Machine setups Running machines Cost Drivers Yards of material handled Number of inspections Number of machine setups Number of machine-hours S 3 per yard S 300 per inspection S2,400 per setup S 30 per hour Direct materials costs were $550,000 and direct labor costs were $275,000 during October, when Department Y handled 20,000 yards of materials, made 400 inspections, had 50 setups, and ran the machines for 10,000 hours. Required Use T-accounts to show the flow of materials, labor, and overhead costs from the four overhead activity centers through Work-in-Process Inventory and out to Finished Goods Inventory Materials Wages Payable Beg. bal Beg. bal End. bal. End. bal Overhead Applied: Materials Handling Overhead Applied: Quality Inspections Beg. bal. Beg. bal End. bal End. bal Overhead Applied: Machine Setups d Applied: Running Machines Beg. bal Beg. bal End. bal End. bal Work in Process (WIP) Inventory Fabrication Department Finished Goods Inventory Beg. bal Beg. bal

Explanation / Answer

Materials Inventory

Direct material costs

550000

  

Wages payable

Direct labour costs

275000

Overhead applied: Materials handling

Manufacturing overhead (20000 x3)

60000

Overhead applied: Quality inspections

Manufacturing overheads (400 x 300)

120000

Overhead applied: Machine set up

Manufacturing overheads (2400 x 50)

120000

Overhead applied: Running machine hours

Manufacturing overheads (10000 x 30)

300000

Work-in-process: Inventory fabrication department

Direct material costs

550000

Finished goods inventory

1425000

Direct labour costs

275000

Manufacturing overhead (20000 x3)

60000

Manufacturing overheads (400 x 300)

120000

Manufacturing overheads (2400 x 50)

120000

Manufacturing overheads (10000 x 30)

300000

1425000

1425000

Finished goods inventory

Work-in-process: Inventory fabrication department

1425000

Materials Inventory

Direct material costs

550000

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