Oberti Guitar Company makes high-quality customized guitars. Oberti uses a job order costing system. Because the guitars are handmade, the company applies overhead based on direct labor hours. At the beginning of the year, the company estimated that total manufacturing overhead costs would be $300,000 and that 20,000 direct labor hours would be worked. At year-end, Anthony, the company’s founder and CEO, gives you the following information regarding Oberti’s operations. 1. The beginning balances in the inventory accounts were: Raw Materials Inventory $8,000 Work in Process Inventory $26,000 Finished Goods Inventory $32,000 2. During the year, the company purchased raw materials costing $97,000. All purchases were made on account. 3. The production department requisitioned $100,000 of raw materials for use in production. Of those, 70% were direct materials and 30% were indirect materials. 4. The company used 21,000 direct labor hours at a cost of $14 per hour during the year (credit Wages Payable). 5. The company used 6,500 indirect labor hours at a cost of $10 per hour (credit Wages Payable). 6. The company paid $178,000 for insurance, utilities, and property taxes on the factory. 7. The company recorded factory depreciation of $40,000. 8. The company applied manufacturing overhead to inventory based on the 21,000 labor hours actually worked during the year. 9. Products costing $665,000 were completed during the year and transferred to the Finished Goods Inventory. 10. During the year, the company sold products costing a total of $672,000. 11. The company closes under- and overapplied overhead to Cost of Goods Sold.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter2: The Purchasing Process

Section: Chapter Questions

Problem 1GPE

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Oberti Guitar Company makes high-quality customized guitars. Oberti uses a job order costing system. Because the guitars are handmade, the company applies overhead based on direct labor hours. At the beginning of the year, the company estimated that total manufacturing overhead costs would be $300,000 and that 20,000 direct labor hours would be worked. At year-end, Anthony, the company’s founder and CEO, gives you the following information regarding Oberti’s operations.

The beginning balances in the inventory accounts were:

	Raw Materials Inventory		$8,000
	Work in Process Inventory		$26,000
	Finished Goods Inventory		$32,000

During the year, the company purchased raw materials costing $97,000. All purchases were made on account.

The production department requisitioned $100,000 of raw materials for use in production. Of those, 70% were direct materials and 30% were indirect materials.

The company used 21,000 direct labor hours at a cost of $14 per hour during the year (credit Wages Payable).

The company used 6,500 indirect labor hours at a cost of $10 per hour (credit Wages Payable).

The company paid $178,000 for insurance, utilities, and property taxes on the factory.

The company recorded factory depreciation of $40,000.

The company applied manufacturing overhead to inventory based on the 21,000 labor hours actually worked during the year.

Products costing $665,000 were completed during the year and transferred to the Finished Goods Inventory.

10.

During the year, the company sold products costing a total of $672,000.

11.

The company closes under- and overapplied overhead to Cost of Goods Sold.

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