Advanced Management Accounting
Week 1 Exercise
Due date: February 28, 2021
Case: Opticom, Inc.
Hanna Pertiwi (2006619803)
Irma Suryani (2006619835)
Case Sesion 2: Opticom Inc.
Opticom, Inc. a manufacturer of fiber optic communications equipment, use a job-order costing
system. Since the production process is heavily automated, manufacturing overhead is applied
on the basis of machine hour using a predetermined overhead rate. The current annual rate of
$30 per machine hour is based on budgeted manufacturing overhead cost of $2,400,000 and a
budgeted activity level of 80,000 machine hours (the company’s estimated practical capacity).
Operations for the year have been completed, and all of the accounting entries have been made
for the year except the application of manufacturing overhead to the jobs worked on during
December, the transfer of cost from Work in Process to Finished Good for the Jobs, completed
in December, and the transfer of cost from Finished Goods to cost of Goods Sold for the jobs
that have been sold during December. Summarized data as of November 30 and for the month
of December are presented in the following table. Jobs T11-007, N11-013, N11-015 were
completed during December. All completed job except N11-013 had been turned over to
customers by the close of business on December 31.
Work in Process December Activity
Job No Balance Nov 30 Direct Material Direct Labor Machine Hours
T11-007 $174.000 $3.000 $9.000 300
N11-013 $110.000 $8.000 $24.000 1.000
N11-015 0 $51.200 $53.400 1.400
D12-002 0 $75.800 $40.000 2.500
D12-003 0 $52.000 $33.600 800
Total $284.000 $190.000 $160.000 6.000
Operating Activity Activity Through December
November 30 Activity
Actual manufacturing overhead incurred:
Indirect material $250.000 $18.000
Indirect labor $690.000 $60.000
Utilities $490.000 $44.000
Depreciation $770.000 $70.000
Total Overhead $2.200.000 $192.000
Other data:
Raw material purchases* $1.930.000 $196.000
Direct-labor cost $1.690.000 $160.000
Machine hours 73.000 6.000
Account Balances at Beginning of Year January 1
Raw-material Inventory* $210.000
Work-in-process inventory $120.000
Finished-goods inventory $250.000
*Raw material purchases and raw-material inventory consist of both direct and indirect
materials. The balance of the raw material inventory account as of December 31 of the year just
completed is $170,000.
Required:
1. Explain why manufacturers uses a predetermined overhead rate to apply manufacturing
overhead to their jobs
2. How much manufacturing overhead would Opticom have applied to jobs through
November 30 of the year completed
3. How much manufacturing overhead would have been applied to jobs during December
of the year completed
4. Determine the amount by which manufacturing overhead is overapplied or underapplied
as of December of the year completed
5. Determine the balance in the Finished-Goods Inventory account on December 31 of the
year just completed.
6. Prepare a Schedule of Cost of Goods Manufactured for Opticom, Inc. for the year just
completed. (Hint: In Computing the cost of direct material used, remember that Opticom
includes both direct and indirect material in its Raw-Material Inventory account)
7. How much is the Cost of Goods Sold for the year just completed?
Answer:
1. Overhead rates at Opticom, Inc. must be determined appropriately to avoid fluctuations
in job costs caused by changes in production volume and overhead costs. This can be
done by setting the overhead rate and allocating it to production costs. It is intended that
management can have information on the cost of work that is timely and accurate.
Opricom, Inc. predetermined overhead rate to know the amount of applied overhead
cost in a production volume in a period. In addition, actual overhead costs are never
assigment directly to jobs. Overhead is applied to each individual job using a
predetermined rates.
2. The manufacturing overhead (Nov) = Machine hours on Nov, 30 x current annual rate
= 73.000 hours x $30
= $2.190.000
3. The manufacturing overhead (Dec) = Machine hours on Dec x current annual rate
= 6.000 hours x $30
= $180.000
4. Manufacturing overhead is overapplied or underapllied:
• Total manufacturing applied on Nov and Dec ($2.190.000+$180.000) $2.370.000
• Total overhead cost recorded on Nov and Dec ($2.200.000+$192.000) ($2.392.000)
Total underapplied overhead ($22.000)
5. The balance finished-goods inventory on Dec, 31:
• Work in process (N11-013) $110.000
• Direct material $8.000
• Direct labor $24.000
• Machine hours (1000 x $30) $30.000
Total balance finished-goods inventory $172.000
6. Schedule of Cost of Goods Manufactured for Opticom, Inc.
Direct material:
Raw-material inventory $210.000
(+) Raw material purchases ($1.930.000+$196.000) $2.126.000
$2.336.000
(-) Indirect material ($250.000+$18.000) ($268.000)
(-) Raw material inventory (Jan, 1) ($170.000)
($438.000)
Raw material used $1.898.000
Direct labor ($1.690.000+$160.000) $1.850.000
$3.748.000
Manufacturing overhead:
Indirect material ($250.000+$18.000) $268.000
(+) Indirect labor ($690.000+$60.000) $750.000
(+) Utilities ($490.000+$44.000) $534.000
(+) Depreciation ($770.000+$70.000) $840.000
$2.392.000
(-) Total underapplied overhead ($22.000)
$2.370.000
Total manufacturing costs $6.118.000
(-) Work in process D12-002 and D12-003
• D12-002 ($75.800+$40.000+(2.500x$30)) ($190.800)
• D12-003 ($52.000+$33.600+(800x$30)) ($109.600)
($300.400)
$5.817.600
(+) Work in process inventory Jan, 1 $120.000
$5.937.600
Cost of Goods Manufactured
7. COGS = COGM + Opening finished good inventory – Ending finished good inventory
= $5.937.600 + $250.000 - $172.000
= $6.015.600
