Ac 505 Case Study 1

Sovereign Millwork, Ltd., produces reproductions of antique residential moldings at a plant located in Manchester, England. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company's fiscal year, inventory account balances were as follows: Raw Materials | £10,000 | Work in Process | £4,000 | Finished Goods | £8,000 |
The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated £99,000 of manufacturing overhead for an estimated activity level of 45,000 machine-hours. During the year, the following transactions were completed: * a. Raw materials purchased on account, £160,000. * b. Raw materials requisitioned for use in production, £140,000 (materials costing £120,000 were chargeable directly to jobs; the remaining materials were indirect). * c. Costs for employee services were incurred as follows: Direct labor | £90,000 | Indirect labor | £60,000 | Sales commissions | £20,000 | Administrative salaries | £50,000 | * d. Prepaid insurance expired during the year, £18,000 (£13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities). * e. Utility costs incurred in the factory, £10,000. * f. Advertising costs incurred, £15,000. * g. Depreciation recorded on equipment, £25,000. (£20,000 of this amount was on equipment used in factory operations; the remaining £5,000 was on equipment used in selling and administrative activities.) * h. Manufacturing overhead cost was applied to jobs, £?. (The company recorded 50,000 machine-hours of operating time during the year.) * i. Goods that had cost £310,000 to manufacture according to their job cost sheets were completed. * j. Sales (all on account) to customers during the year totaled