Answer the following questions:

1. Use the following T accounts to answer the following questions (all beginning balances are zero)

Material Inventory    Work in Process    Finished Goods Inventory
67,000 53,000 48,000 148,000 148,000 136,000 70,000 63,000

Manufacturing Wages Manufacturing Overhead
76,000 76,000 5,000 63,000 6,000 57,000

a. Cost of direct material
b. Cost of indirect material
c. Cost of direct labor assigned to production
d. Cost of indirect labor
e. Cost of goods manufactured
f. Allocated manufacturing overhead
g. Cost of goods sold
h. Budgeted manufacturing overhead rate as a percentage of direct labor cost

2. Consider the exercise we have been working with in the class lectures. Suppose actual manufacturing overhead cost has been 180,000 rather than 210,000.
a. Calculate the actual manufacturing overhead rate
b. Would manufacturing overhead rate have been under allocated or over allocated?
c. What journal entry would you make to close the manufacturing overhead account (Consider in your answer the following: which accounts should be corrected, by how much each account should be corrected)

3. Ecospheres Associates produces self sustained enclosed glass spheres that include water, algae, tiny shrimp, and snails. The firm has the following transactions:
a. Purchase raw material on account, 35,000
b. Materials costing 30,000 were requisitioned for production. Of this total, 3,000 were indirect labor.
c. Labor time tickets for the month show direct labor for 22,000 and indirect labor 4,000
Prepare journal entries for each transaction

ABC Corp had the following inventories at the end of year 2008
Materials Inventory $40000
Work in process inventory $25000
Finished goods inventory $30000
During January 2009, ABC actually used 500 machine hours and recorded the following transactions:
a. Purchased materials on account $40000
b. Requisitioned direct material $39000
c. Manufacturing labor costs incurred $50000
d. Manufacturing labor was 85% direct labor, 15% indirect labor
e. Requisitioned indirect material $5000
f. Incurred other manufacturing overhead $20000 (credit accounts payable)
g. Allocated manufacturing overhead ($50 per machine hour)
h. Completed production $80000
i. Sold goods on cash $180000, cost of goods sold $95000
a. Record the transactions in the general journal
b. Post the transactions and inventory balances to the following accounts
c. Record the journal entries to close the ending balance of manufacturing overhead. Pots the entry to the T accounts.
d. What are the ending balances in the 3 inventory accounts and cost of goods sold

4. Xerious Limited allocates manufacturing overhead cost based on machine hours. The company records the following costs for the year:
• Indirect Labor $60000
• Plant supplies $30000
• Machinery repair $10000
• Advertising $5000
• Rent on plant $12000
• Plant utilities $18000
• Sales commission $45000
• Direct labor $85000

Xerious has budgeted 80000 machine hours and 110000of manufacturing overhead costs for the year. Xerious actually used 75000 machine hours.
a. Compute the predetermined manufacturing overhead rate
b. How much is the actual manufacturing overhead
c. Compute the allocated manufacturing overhead
d. What is the ending balance in the manufacturing overhead account (use a T account to show this balance)
e. Close the ending balance for the manufacturing overhead account

Exercise 1:

Joomin Kim runs a beauty shop called Nails by Joomin specializing in manicures and pedicures. The business operates as a sole trader. Joomin wants to take advantage of the growth of the businessand its good reputation by opening a second store in a shopping centre about 10 kilometers from the original location.

A friend suggested to her that she could develop the business by franchising and increasing her economies of scale, but Joomin wants to own the new store and maintain control. She is consideringrestructuring as a private limited company. Joomin will finance the new store using $25 000 from hersavings and $50 000 from a bank loan.

She anticipates revenues and expenses for the first 6 months of the new store (January to June 2010) as follows:
• initial balance: $75 000 (savings and bank loan)
• initial start-up expenses: $15 000
• monthly rent: $2000
• store manager monthly salary: $2000 (increasing by 6 % in month 3)
• monthly loan payment: $1000
• monthly expenses for additional labour: $1000 for the first month,
increasing by 20 % per month
• initial revenue: $2000 a month, increasing by 20 % each month.

She was able to obtain this loan because of the strength of her personal financial position (she owns her own house and has no mortgage).

1. Prepare a monthly cash flow forecast for the first 6 months of
operation of the new store.
2. Comment on the projected cash flow forecast of the new store.
3. Examine two difficulties that small businesses like Nails by Joomin face in obtaining sources of finance for expansion.

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