Question 2: Schedules of cost of goods manufactured and sold; income statement (10 Marks)


The following data refer to Flintoff Fashions for the current year:

Sales revenue                                                      $570 000

Work in process inventory, 31 December      18 000

Work in process inventory, 1 January             24 000

Selling and administrative expenses                              90 000

Income tax expense                                            54 000

Purchases of raw materials                               108 000

Raw material inventory, 31 December            15 000

Raw material inventory, 1 January                  24 000

Direct labour                                                         120 000

Electricity: plant                                                    24 000

Depreciation: plant and equipment                 36 000

Finished goods inventory, 31 December       30 000

Finished goods inventory, 1 January              12 000

Indirect material                                                   6 000

Indirect labour                                                      9 000

Other manufacturing overhead                        48 000


1              Prepare the schedule of cost of goods manufactured for Flintoff Fashions.

2              Prepare the schedule of cost of goods sold for Flintoff Fashions.

3              Prepare the income statement for Flintoff Fashions.

4              Construct an Excel® spreadsheet to solve all the preceding requirements. Include formulas in your spreadsheet wherever possible. Show how both cost schedules and the income statement will change if:

(a)           raw material purchases amounted to $110 400.

(b)           indirect labour was $9600.



Question 3: Job costing; department overhead cost allocation: tour operator (10 Marks)

Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller, Jack Tallis, is preparing for the annual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits for each of the three departments of the business—family, seniors and corporate—and it seems that the corporate department is the source of the problem.

Jack has asked you to assist him to look more closely at the three packages offered by the corporate department to see which holiday packages are yielding profits and which are not. The three packages are to Thailand, Malaysia and Indonesia. The sales and direct costs of each corporate package for last year are as follows:

Bali Adventure Thailand Discovery Malaysian Orienteering
Number of packages sold 10 20 10
Number of people per package 5 6 8
Revenue per person $18 000 $12 000 $14 000
Direct cost per package:
Tour leader $5 000 $12 000 $9 000
Tour assistant 2 000 3 000 6 000
Air travel 28 000 30 000 32 000
Accommodation 15 000 26 000 24 000
Equipment hire 4 000 0 9 000
Meals 18 000 15 000 8 000

To calculate the profitability of each package, a proportion of the overhead costs of running the corporate department needs to be allocated to the three packages. Jack has suggested that these costs could be allocated to each package in proportion to actual sales revenue. For last year these overhead costs were as follows:

Salaries $200 000
Phone 2 000
Depreciation on equipment 5 000
Utilities 2 000
Rent and property taxes 9 000
Other department costs 12 000
Total $230 000



  1. Calculate the profit per package and the total profitability of each of the three corporate packages.
  2. Compare the profitability of the three corporate packages.
  3. Do you consider that the allocation of the corporate department overhead to packages using actual sales revenue is appropriate? Can you suggest a better method?
  4. Suggest what actions the company could take in regard to the three corporate packages.


Question 4: Cost of goods manufactured; overapplied or underapplied overhead; journal entries (10 Marks)

Cool Cooking Tools Ltd, manufacturer of gourmet cooking utensils, uses job costing. Manufacturing overhead is applied to production at a predetermined overhead rate of 150 per cent of direct labour cost. Any overapplied or underapplied manufacturing overhead is closed to cost of goods sold at the end of each month. Additional information:

Page 163

Job SR22, consisting of ceramic spoon rests, was the only job in process on 31 January, with accumulated costs as follows:

Direct material                                      $4000

Direct labour                                           2000

Applied manufacturing overhead       3000

Total                                                       $9000


Jobs BS67, TR29 and GT108 were started during February.

Direct materials requisitions during February totalled $26 000.

Direct labour cost of $20 000 was incurred during February.

Manufacturing overhead incurred in February was $32 000.


The only job still in process on 28 February was job number GT108, with costs of $2800 for direct material and $1800 for direct labour.


1              Calculate the cost of goods manufactured for February.

2              Calculate the amount of overapplied or underapplied overhead to be closed to cost of goods sold on 28 February.

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