As per AICPA's Code of Professional Conduct, the principle of ...

[leilurhhh]

As per AICPA's Code of Professional Conduct, the principle of ________ imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.
 
  A) public trust
  B) independence
  C) diligence
  D) objectivity

Question 2

Job costingservice industry.
 
  Jordan Brady schedules gigs for local bands and creates CDs and T-shirts to sell at each gig. Brady uses a normal-costing system with two direct-cost pools, labor and materials, and one indirect-cost pool, general overhead. General overhead is allocated to each gig based on 120 of direct labor cost. Actual overhead equaled allocated overhead as of March 2014. Actual overhead in April was 1,980. All costs incurred during the planning stage for a gig and during the gig are gathered in a balance sheet account called Gigs in Progress (GIP). When a gig is completed, the costs are transferred to an income statement account called Cost of Completed Gigs (CCG). Following is cost information for April 2014:
 
  As of April 1, there were three gigs in progress: Irok, Freke Out, and Bottom Rung. The gigs for Dish Towel and Rail Ride were started during April. The gigs for Freke Out and Dish Towel were completed during April.
 
  Required:
  1. Calculate GIP at the end of April.
  2. Calculate CCG for April.
  3. Calculate under- or overallocated overhead at the end of April.
  4. Calculate the ending balances in GIP and CCG if the under- or overallocated overhead amount is as follows:
  a. Written off to CCG
  b. Prorated based on the ending balances (before proration) in GIP and CCG
  c. Prorated based on the overhead allocated in April in the ending balances of GIP and CCG (before proration)
  5. Which method would you choose? Explain. Would your choice depend on whether overhead cost is underallocated or overallocated? Explain.

[SamMuagrove]

Answer to Question 1

D
Explanation: D) Objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.

Answer to Question 2

1. Gigs in Process (GIP) April 30, 2014

Author Materials
(1) Direct
Labor
(2) Overhead
(3) = 120  (2) Total
(4)
Irok (570 + 110; 750 + 200)  680  950 1,140 2,770
Bottom Rung
(250 + 310; 475 + 250) 560 725 870 2,155
Rail Ride 225 250 300 775
Total 1,465 1,925 2,310 5,700

2. Cost of Completed Gigs (CCG) in April 2014

Author Materials
(1) Direct
Labor
(2) Overhead
(3) = 120  (2) Total
(4)
Freke Out
(700 + 140; 550 + 100)  840  650  780 2,270
Dish Towel 540 450 540 1,530
Total 1,380 1,100 1,320 3,800

3. Overhead allocated = 1.20  1,250a = 1,500
Underallocated overhead = Actual overhead  Allocated overhead
= 1,980  1,500 = 480 underallocated

a Total direct labor in April = 200 + 100 + 250 + 450 + 250 = 1,250

4a. Underallocated overhead is written off to CCG

GIP inventory remains unchanged.
Account April 30, 2014 Balance
(Before Proration)
(1) Underallocated
Overhead of 480 written off to Cost of Completed Gigs (CCG)
(2) April 30, 2014 Balance
(After Proration)
(3) = (1) + (2)
GIP 5,700  0 5,100
CCG 3,800 480 4,280
9,500 480 9,980

4b. Underallocated overhead prorated based on April overhead in ending balances
Account April 30, 2014
Balance
(Before
Proration)
(1) Overhead
Allocated in
April Included
in April 30, 2014 Balance
(2) Overhead Allocated
in April Included
in April 30, 2014 as
a Percent of Total
(3) = (2)  1,500 Proration of 480
Underallocated
Overhead
(4) = (3) 480
April 30, 2014
Balance
(After Proration)
(5) = (1) + (4)
GIP 5,700  840a 0.56 0.56 480 =  268.80
5,968.80
CCG 3,800 660b 0.44 0.44 480 = 211.20
4,011.20
9,500 1,500 1.00  480.00 9,980.00

aApril labor for Irok, Bottom Rung, and Rail Ride 120
= (200 + 250 + 250)  120 = 700  120 = 840

bApril labor for Freke Out and Dish Towel 120
= (100 + 450) 120 = 550 120 = 660

5. I would choose the method in 4b (proration based on overhead allocated) because this method results in account balances based on actual overhead allocation rates. The account balances before proration in GIP and CCG are significant, and underallocated overhead is material.
Of course, the method chosen affects reported operating income. In the case of underallocated overhead, writing off to CCG results in lower operating income compared to proration and lower taxes. If overhead had been overallocated, proration would result in lower operating income and lower taxes.
Despite the tax considerations, I would choose proration because it best represents Brady's performance during a period. I would use the simpler method of write off to CCG only if the amount were immaterial or if it represents inefficiency. I would apply this method consistently from period to period.

[leilurhhh]

Thank you

[SamMuagrove]

No problemo