Sami Design Ltd manufactures Sami musical instruments for use by high school students. The company uses a job costing system in which manufacturing overhead is applied on the basis of direct labour hours. The company’s budget for the current year included the following predictions:
Budgeted total manufacturing overhead $556,020
Budgeted total direct labour hours 27800
During March, the firm began two production jobs:
job number T81, consisting of 40 trombones
job number C40, consisting of 95 cornets.
The events of March are described as follows:
1000 square metres of rolled Sami sheet metal were purchased on credit for $5000
400kilograms of Sami tubing were purchased on credit for $3300
The following requisitions were filed on 5 March:
— requisition number 112: 250 square metres of Sami sheet metal @ $5 per square metre (for job number T81)
— requisition number 113: 1000 kilograms of Sami tubing @ $10 per kilogram (for job number C40)
— requisition number 114: 10 litres of valve lubricant @ $ per litre.
— All Sami used in production is treated as direct material. Valve lubricant is an indirect material.
An analysis of labour time sheets revealed the following labour usage for March:
— direct labour: job number T81, 500 hours @ $10 per hour
— direct labour: job number C40,600 hours @ $10 per hour
— indirect labour: general factory clean-up, $2650
— indirect labour: factory supervisory salaries, $6300
Depreciation of the factory building and equipment during March amounted to $9300
Rent paid in cash for warehouse space used during March was $930
Electricity costs incurred during March amounted to $1695 The invoices for these costs were received, but the bills were not paid in March.
March council rates and property taxes on the factory were paid in cash, $1860
Insurance cost covering factory operations for March was $2560 The insurance policy had been prepaid in February.
Costs of salaries and on-costs for sales and administrative personnel paid in cash during March amounted to $5300
Depreciation on administrative office equipment and space amounted to $2650
Other selling and administrative expenses paid in cash during March amounted to $1000
Job number T81 was completed in March.
Half the trombones in job number T81 were sold on credit during March for $500 each.
The 1 March balances in selected accounts are as follows:
Account Name 1 March Balance
Cash $6,000
Accounts Receivable $13,000
Prepaid Insurance $6,120
Raw material Inventory $149,000
Manufacturing supplies inventory $500
Work in process Inventory $52,000
Finished Goods Inventory $156,000
Accumulated depreciation: building and equipment $102,000
Accounts payable $13,000
Wages payable $8,000
1. Calculate the company’s predetermined overhead rate for the current year.
2. Complete job cost sheet for job number T81.
3. Prepare journal entries to record the events of March.
4. Set up ledger accounts, and post the journal entries made in requirement 3.
5. Calculate the overapplied or underapplied overhead for March. Prepare a journal entry to close this balance into cost of goods sold.
6. Prepare a schedule of cost of goods manufactured for March.
7. Prepare a schedule of cost of goods sold for March.
8. Prepare an income statement for March.
9. Provide the management team of Sami Design Ltd with the issues could occur applying the current traditional manufacturing overhead costing system. We will not be able to provide solution for this question.
10. Analyse and describe the benefits of replacing Activity Base Costing (ABC). We will not be able to provide solution for this question.


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