Mid-Life Motorcycles (MLM) is a small shop that builds customized motorcycles, mostly for middle-aged men with significant discretionary income who are hoping to fulfill a high-school dream. Since it works with high-end clients, all of its work is custom and it makes many of the bike parts used, including frames, in-house. Other parts, such as the engine, are purchased from outside suppliers and then modified in-house. Although most of the bikes are built to-order for a specific individual, the shop occasionally builds a bike with no prearranged buyer. These bikes are sometimes intended to be entered in custom-bike contest and then sold afterwards. The shop has been in existence for 10 years, but for the sake of simplicity, assume it has no beginning inventories for 2019. Five motorcycle restoration projects were worked on during 2019. By the end of the year, four of these projects were complete and three of them had been sold. The following selected data are from MLM's 2019 budget. Advertising 11,350 Direct materials. 206,308 Direct labor 185,700 Rent on office space 10,200 Rent on factory space 30,600 Indirect materials 15,300 Maintenance costs for factory equipment 5,100 Utilities costs for office space 1,500
Utilities costs for factory space 4,000 Depreciation on factory equipment 12,000
Machine hours expected to be worked 4,000 Direct labor hours expected to be worked 6,500
The following information relates to production events during 2019. • Raw materials were purchased for $207,500. • Materials used in production totaled $200,400; $15,200 of these were considered Indirect materials costs. The remaining $185,200 of direct materials costs related to individual motorcycle jobs as follows. Job Number Direct Materials Cost 115 $42,400 116 34,700 117 41,100 118 38,800 119 28, 200 • Labor costs incurred for production totaled $176,700. The workers are highly skilled craftsmen who require little supervision. Therefore, all of these costs were considered direct labor costs and related to individual jobs as follows. Job Number Direct Labor Cost 115 $39,200 116 41,100 117 47,300 118 29,600 119 19,500 • Paid factory rent of $29,000. • Recorded depreciation on factory equipment of $12,500. • Made $5,500 of payments to outside vendors for maintenance of factory equipment.
• Paid factory utilities costs of $4,100. Applied manufacturing overhead using a predetermined rate of $16.75 per machine hour. The 3,460 machine hours that were used relate to each job as follows.
Job Number Hours Machine Worked 115 680 116 750 117 800 118 780 119 450 • Completed all jobs except Job 119 and transferred those projects to finished goods. Sold three jobs for the following amounts: Job Number Sales Price 115 $129,400 116 121,600 117 114,100 • Closed the Manufacturing Overhead account to transfer any overapplied or underapplied overhead to the Cost of Goods Sold account. Required a. Assume MLM had used direct labor hours (versus machine hours) as its cost driver. Compute its predetermined overhead rate. (Round your answer to 2 decimal places.) b. Determine the ending balance in Raw Materials Inventory. c. Determine the ending balance in Finished Goods Inventory. d. Determine the ending balance in Work in Process Inventory. e. Determine the costs of goods manufactured. f. Determine the amount of Cost of Goods Sold. g. Determine the amount of gross margin that was earned on Jobs 115, 116, and 117. h. Determine the amount of overapplied or underapplied overhead that existed at the end of the year. (For all requirements, round your intermediate calculations to 2 decimal places.) a. Predetermined overhead rate per hour b. Ending balance in Raw materials c. Ending balance in Finished goods inventory d. Ending balance in Work in process inventory e. Cost of goods manufactured 1. Cost of goods sold g. Gross margin for job 115 Gross margin for job 116 Gross margin for job 117 h. Over or underapplied overhead