Bags R Us manufactures back packs for schools. The business uses a perpetual inventory system and has a highly labour intensive production process, so it applies manufacturing overhead based on

Bags R Us manufactures back packs for schools. The business uses a perpetual inventory system and has a highly labour intensive production process, so it applies manufacturing overhead based on direct labour hours. Any overhead variance is closed out to Cost of Goods Sold. The business’s pre-determined overhead application rate for 2018 was computed from the following data: Total estimated factory overheads Total estimated direct labour hours $4,200,000 35,000 During the first month of 2018, the business recorded the following transactions. i) Purchased materials on account, $500,000 ii) Incurred manufacturing wages of $1,065,000 iii) Issued direct materials and used direct labour in manufacturing Direct Materials Direct Labour Direct Labour Hours Job 401 $100,000 $220,000 1,200 Job 402 81,000 190,000 1,000 Job 403 90,000 205,000 1,100 Job 404 150,000 290,250 1,800 iv) Issued indirect materials to production, $80,000 v) Charged indirect manufacturing wages to production, $159,750 vi) Depreciation expense on factory equipment used on the different jobs, $300,000 vii) Other overhead costs incurred on jobs 401 to 404 amounted to $112,750 viii)Applied factory overhead to the various jobs using the pre-determined factory overhead rate. ix) Finished Jobs 401 – 403 and transferred to the finished goods inventory account x) Shipped Job 401 and 402 and billed customers at a margin of 25% on cost. Required: a) Compute Bags R Us’ predetermined manufacturing overhead rate. b) Calculate the total manufacturing cost for each job. c) Using the total figures, record the transactions in the general journal. d) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account and state the balance on the account before closing the account. Show the journal entries necessary to dispose of this variance. e) is the balance in the Cost of Goods Sold account after the adjustment? f) Calculate the gross profit earned by Bags R Us for the month. g) Open T-accounts for Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts & determine the ending account balances. Assume that the beginning balances were zero.

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