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ACCTG 421 2014 Spring Project American Guitar, Inc. (AGI) manufactures different types of guitar. AGI uses a job-order costing system and employs...

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ACCTG 421 2014 Spring Project American Guitar, Inc. (AGI) manufactures different types of guitar. AGI uses a job-order costing system and employs absorption costing. AGI has two support departments 1 : the R&D (design) department and the maintenance department, and two manufacturing departments: the construction department and the finishing department. AGI uses the dual-rate direct cost allocation method to allocate in-house design costs to jobs and maintenance costs to manufacturing departments. In the Construction Department, the wooden guitars are built by highly skilled craftsmen and coated with several layers of lacquer. Then the units are transferred to the Finishing Department, where the bridge of the guitar is attached and the strings are installed. The guitars also are tuned and inspected in the Finishing Department 2 . American Guitar estimates to have an annual practical capacity of 6000 guitars (1500 units of professional model and 4500 units of beginner model). The budgeted sales for 2014 are 1300 units professional model and 4300 units of beginner model. For budgeting and planning purpose, AGI estimates that each guitar requires following direct labor hours to complete on average: Construction Department Finishing Department Beginner model (B) 2 3 Professional model (P) 3 5 The following historical information has been collected from American Guitar's accounting information systems: 2010 2011 2012 2013 Annual sales 4146(B) & 1611(P) 4456(B) & 1256(P) 4668(B) & 1322(P) 4075(B) & 1300(P) January sales 393(B) & 183(P) 398(B) & 163(P) 405(B) & 168(P) 372(B) & 155(P) 2013 Total Overhead ($) Total DLH of the two manufacturing departments 3 January 134,000 2,210 February 137,000 2,280 March 148,000 2,510 April 155,000 2,790 May 157,000 2,980 June 165,000 3,590 July 169,000 3,490 August 168,000 3,030 September 163,000 3,040 October 157,000 3,380 1 Support department provide essential services for manufacturing departments. 2 Direct-material is added at the beginning of manufacturing process in construction department. The direct-material and conversion costs are incurred uniformly throughout the process in finishing department. 3 American Guitar believes that overhead is affected by total monthly DLH of the two manufacturing departments.
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November 139,000 2,420 December 133,000 2,100 Total 1,825,000 33,820 American Guitar’s direct 4 and indirect costs for the two service and two manufacturing departments in 2013: Design Department Maintenanc e Departmen t 5 Constructio n Department Finishing Departmen t Labor-hours 2000 2032 18950 14870 Maintenance hours 60 140 800 1,000 Direct fixed costs $15,000 $36,000 $480,000 $432,000 Direct variable costs $44,000 $30,480 $346,800 $358,200 Indirect fixed costs $9,600 Indirect variable costs $4,400 American Guitar does not expect significant changes in its manufacturing cost structure in 2014. At the end of December 2013, the balance in American Guitar’s Materials Inventory account, which included 150 pounds of grade A veneered wood, was $2,640; the balance in the finished- goods inventory, which was valuated using the last-in, first-out (LIFO) method, consisted of 2 models, was $16,600. Quantity and Unit Cost Beginner model 20 units @ $430 each Professional model 10 units @ $800 each The following pertains to the month of January. 1. There were no beginning inventories in both manufacturing departments. 2. American Guitar's work-in-process inventory on January 31 consisted of two jobs: B0642 and P0642. The ending WIP inventories at the finishing department for B0642 and P0642 have 10 EU and 6 EU respectively. 3. Additions to and requisitions from the materials inventory during the month of January included the following. Raw Materials Purchased Parts Additions 550 pounds of grade A veneered wood for $9,680 3300 pounds of grade B veneered wood for $41,580 100 set of premium bridges and strings for $1,840 400 set of regular bridges and strings for $6,560 Requisitions Job B0639 (120 beginner units) 936 pounds of grade B wood 125 regular sets Job B0640 (100 beginner units) 790 pounds of grade B wood 103 regular sets Job B0641 (150 beginner units) 1170 pounds of grade B 153 regular sets 4 For a manufacturing department, direct (indirect) costs refer only to overhead costs that are (are not) directly traceable to the department. For a support department, direct (indirect) costs refer to all costs that are (are not) directly traceable to the department. 5 Maintenance department is to maintain all the tools and equipments in design, construction and finishing department. Its service is measured by the maintenance hours. The maintenance hours provided by the department for 2012 & 2013 were 2,150 and 2,240 respectively.
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