ACCT 2102 1st Edition Lecture 9 Outline of Last Lecture: I. Allocating MOH II. Overallocated/Underallocated MOH III. Example #1 IV. Closing out MOHOutline of Current Lecture: V. In class ExampleCurrent Lecture: In Class Example: Finding Cross ProfitAngry Birds, Inc. designs and builds walls for individual customers. On August 1, 2 jobs were in process: Level 1 with a beginning balance of $10,400 and Level 2 with a beginning balance of $8,600. During August 1, Level 3 and 4 were started. Level 1 was completed and sold at cost plus 40% during August. All other jobs remained in process at month end.The company applies manufacturing overhead at a rate of $11 per direct labor hour. Direct laborwages average $10 per hour. The following additional cost information is available for August. Level 1 Level 2 Level 3 Level 4Direct Materials $1,200 $8,000 $2,100 $3,000Direct Labor $1,800 $4,000 $200 $800The sales staff is paid a 2% commission on all sales for the period. Calculate the Gross Profit reported on the Income Statement for August assuming the company incurred $8,000 in actual MOH during August. (*This information is irrelevant for solving this problem because sales commission is a period cost, which we do not need to calculate GP.)Breakdown of problem:- On August 1, 2 jobs were in process: Level 1 with a beginning balance… This means that jobs 1 and 2 were not sold or completed at the end of the previous period/job.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Level 1 was completed and sold at cost…This means that Level 1 job will close to COGS since the job was completed.- All other jobs remained in process…This means that all other jobs will close to WIP.- What is the problem asking?Find Gross Profit. We must do this by first adjusting the COGS account.Given:Actual MOH = $8,000POHR = $11/DL hourWage rate = $10/DL hourLevel 1 (COGS) Level 2 (WIP) Level 3 (WIP) Level 4 (WIP) Total Applied MOHBeginning Balance$10,400 $8,600 0 0DM $1,200 $8,000 $2,100 $3,000DL $1,800 $4,000 $200 $800MOH (Applied)Need to find:Applied MOH for each jobApplied MOH = POHR x hours (machine or DL)—for this problem we use DL hoursDL Cost = wage rate x DL hoursRearrange the 2 equations and we get:Applied MOH = DL Cost x POHR Wage rateSolve:Applied MOH Level 1 = $1,800 x 11 = $1,980 10Applied MOH Level 2 = $4,000 x 11 = $4,400 10Applied MOH Level 3 = $200 x 11 = $220 10Applied MOH Level 4 = $800 x 11 = $880 10Level 1 (COGS) Level 2 (WIP) Level 3 (WIP) Level 4 (WIP) Total Applied MOHBeginning Balance$10,400 $8,600 0 0DM $1,200 $8,000 $2,100 $3,000DL $1,800 $4,000 $200 $800MOH (Applied)$1,980 $4,400 $220 $880 = $7,480$15,380 $25,000 $2,520 $4,680From table above we see that ending WIP = $25,000 + $2,520 + $4,680 = $32,200We also know that finished goods = $0.The problem asks for Gross Profit:SR (Sales Revenue) - Adjusted COGS = Gross ProfitTherefore, we need to find SR and adjusted COGS:“Level 1 was completed and sold at cost plus 40% during August.”SR = $15,380 + ($15,380 x 40%) = $21,532Actual MOH Applied$8,000 (given) $7,480 (found in previous table)(8,000 – 7,480) = $520 underHere we see COGS needs to be adjusted by $520. MOH was underallocated, which means it must be added to Adjusted COGS.Adjusted COGS = $15,380 + $520 = $15,900Solve for Gross Profit:SR (Sales Revenue) - Adjusted COGS = Gross Profit$15,380 - $15,900 =
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