Outline two different treatments for the over or underapplied overhead balances when using a job order costing system.

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December 22, 2020
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Management Accounting
Turramurra Furniture Company manufactures specialist furniture for use with computers .It uses a FIFO costing system to allocate costs to Finished Goods and maintains its financial records on a financial year which operates from 1 July 2018 to 30 June 2019 .
The Work in Process Inventory on 31 May 2019 consisted of the following :
Job No. Description Units Accumulated Cost
SE523 Storage Equipment 20,000 $ 900,000
PS612 Printer Stand 25,000 250,000
CH421 Chair 15,000 431,000
Total $1,581,000
The Finished Goods Inventory at 31 May 2019 was as follows :
Item Description Quantity and Unit cost Accumulated Cost
Storage Equipment 7,500 units at $64 each $ 480,000
Printer Stand 21,000 units at $55 each 1,155,000
Chair 19,400 units at $35 each 679,000
Desk 11,200 units at $102each 1,142,400
Total $3,456,400
At the end of May 2019 the balance in Turramurra Furniture Company ‘s Material Inventory Account
was $668,000 .Purchases of Material Inventory during June were $638,000.
The Raw Material requisitioned for jobs during June were as follows:
Job No. $
SE523 155,000
PS612 211,000
CH421 13,800
DS174(5000 desks) 252,000
Turramurra Furniture Company applies manufacturing overhead on the basis of machinehours.The manufacturing overhead budgetfor the year totalled $4,500,000 and the company budgeted it would be using 900,000 machine hours .From July 2018 to the end of May 2019 the company has used 830,000 machine hours and its actual manufacturing overhead has amounted to $4,122,000.
During the month of June 2019 machine hours ,labour hours and labour cost was as follows:
Job No Machine Hours Labour Hours Labour Cost
SE523 12,000 11,600 $ 122,400
PS612 19,500 14,300 200,500
CH421 4,400 3,600 43,200
DS174 14,000 12,500 138,000
Indirect labour 3,000 29,400
Supervision 57,600
Total 49,900 45,000 591,100
The jobs completed in June 2019 and the unit sales during June 2019 were as follows:
Job No Description Quantity completed Unit sales
SES523 Storage Equipment 19,000 17,500
PS612 Printer Stand 0 18,000
CH421 Chairs 14,000 21,000
DS174 Desks 5,000 6,000
Required:

(a)Describe the circumstances when a job order costing system should be used
(b)Calculate,showing working, the balance in Turramurra Furniture Company’s Work in Process
Account at 30 June 2019.
(c)Calculate the cost of the chairs in the Finished Goods Inventory at 30 June 2019
(d)Actual manufacturing overhead incurred in June amounted to 246,000 .Calculate the over or underapplied overhead for the year.
(e) Outline two different treatments for the over or underapplied overhead balances when using a job order costing system.
( f)If the Turramurra Furniture Company considers that a variation of $40,000 in the over or underapplication of overhead is material and must be dealt with appropriately in the accounts
is the variation(over or underapplication of overhead) material? If it is what approach does the company use to adjust the over or underapplication of overhead?
(g) The company is concerned with its calculation and application of overhead and has asked you to advise if it should consider using Activity Based Costing as it is considering expanding its product range and its concernsaboutoverhead application .

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