Question

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company’s inventory balances were as follows:

Raw materials	$	25,000
Work in process	$	13,600
Finished goods	$	31,800

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 37,800 machine-hours and incur $166,320 in manufacturing overhead cost. The following transactions were recorded for the year:

1. Raw materials were purchased on account: $236,000.
2. Raw materials were requisitioned for use in production: $208,000 (85% direct and 15% indirect).
3. The following costs were incurred for employee services:

Direct labour	$	174,400
Indirect labour	$	30,600
Sales commissions	$	41,400
Administrative salaries	$	87,200

4. Heat, power, and water costs were incurred in the factory: $50,100.
5. Prepaid insurance expired during the year: $19,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
6. Advertising costs were incurred, $59,000.
7. Depreciation was recorded for the year: $70,800 (75% relates to factory operations, and 25% relates to selling and administrative activities).
8. Manufacturing overhead cost was applied to production. The company recorded 43,600 machine-hours for the year.
9. Goods that cost $539,200 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
10. Sales for the year totalled $783,700 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $530,600.

2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don't forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account Raw Materials Manufacturing Overhead Beg. Bal. Beg. Bal. End. Bal. End. B Work in Process Cost of Goods Sold Beg. Bal. Beg. Ba End. Bal End. Bal. Finished Goods Beg. Bal. End. Bal. 3-a. Is manufacturing overhead underapplied or overapplied for the year?

Answer 1

Transaction	Accounts	debit	credit
a	Raw materials	236000
	Accounts payable		236000
b	Work in process	176800
	Manufacturing overhead	31200
	Raw materials		208000
c	Work in process	174400
	Manufacturing overhead	30600
	Sales commission expense	41400
	Administrative salaries expense	87200
	Salaries and wages payable		333600
d	Manufacturing overhead	50100
	Accounts payable		50100
e	Manufacturing overhead	15200
	Insurance expense	3800
	Prepaid insurance		19000
f	Advertising expense	59000
	Accounts payable		59000
g	Manufacturing overhead	53100
	Depreciation expense	17700
	Accumulated expense		70800
h	Work in process	191,840
	Manufacturing overhead		191,840
	(43600*166320/37800)
i	Finished goods	539200
	Work in process		539200
j	Accounts receivable	783700
	sales		783700
	cost of goods sold	530600
	Finished goods		530600
	Ques 3-a Overapplied overheads
Ques 3-b	Manufacturing Overhead	11,640
	Work in process		344
	Finished goods		800
	cost of goods sold		10,496

Raw Materials					Manufacturing overhead
Beg Bal	25000	208000	b		Beg Bal
a	236000				b	31200	191,840	h
					c	30600
End Bal	53000				d	50100
					e	15200
Cost of goods sold					g	53100
Beg Bal
j	530600
					Work in process
End Bal	530600				Beg Bal	13600
					b	176800	539,200	i
Finished goods					c	174400
Beg Bal	31800				h	191,840
i	539200	530600	j
					End Bal	17440
End Bal	40400

Income statement
Sales		783700
Cost of goods sold		520,104
Gross profit		263,596
Selling and administrative expenses
Sales commissions	41400
Administrative expenses	87200
Insurance expense	3800
Advertising expense	59000
Depreciation expense	17700	209100
Operating income		54,496

workings

Cost of goods sold	530600	90.17%	11,640	10,496
WIP	17440	2.96%	11,640	345
FG	40400	6.87%	11,640	800
	588440			11641