Question

Problem Bi Babb Company is a manufacturing firm that uses jou uses job-order costing. The company's the beginning and end of the year: inventory balances were as follows at the beginning and end Beginning Balance Ending Balance $11,000 $32,000 $14,000 Finished goods $108,000 $123,000 $15,000 Raw materials............ Work in process...... applies overhead to jobs using a predetermined overhead rate based line-hours. At the beginning of the year, the company estimated that estimated that it would work 17,000 machine-hours and incur $272.000 in manufacturing overne ufacturing overhead The company applies overhead to jo on machine-hours. At the beginning of the year, the cost. The following transactions were recorded for the year: • Raw materials were purchased, $416,000. Raw materials were requisitioned for use in production, $412,000 $(376,000 direct and $36,000 indirect). • The following employee costs were incurred: direct labor, $330,000; indirect labor, $69.000; and administrative salaries, $157,000. . Selling costs, $113,000. • Factory utility costs, $29,000. • Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7.000 is related to selling, general, and administrative activities. • Manufacturing overhead was applied to jobs. The actual level of activity for the year was 15,000 machine-hours. • Sales for the year totaled $1,282,000. 121.000 depreciation Required:a. Prepare a schedule of cost of goods manufactured in good form. *b. Was the overhead underapplied or overapplied? By how much? +c. Prepare an income statement (with a COGS schedule) for the year in good form. The company closes any underapplied or overapplied manufacturing overhead to Cost of Goods Sold.

Answer 1

a.Schedule of cost of goods manufactured

Estimated total manufacturing overhead(a) $272,000

Estimated total machine hours(b) 17,000 hours

Pre-determined overhead rate(a÷b) $16

Actual total machine-hours(a) 15,000 hours

Pre-determined overhead rate(b) $16

Overhead applied (a×b) $240,000

Direct Materials:

Raw material inventory, beginning $11,000

Add: Raw materials purchased $416,000

Total raw materials available $427,000

Less:Raw material inventory, ending $15,000

Raw material used in production $412,000

Less:Indirect materials $36,000

Direct materials $376,000

Add:Direct labour $330,000

Add:Manufacturing overhead applied $240,000

Total manufacturing costs $946,000

Add:Work in process, beginning $32,000

$978,000

Less:Work in process, ending $14,000

Cost of goods manufactured $964,000

b.Calculation of underapplied or overapplied overhead

Actual manufacturing overhead costs incurred:

Indirect materials $36,000

Indirect Labour $69,000

Factoty Utilities $29,000

Factory Depreciation $114,000

Manufacturing overhead costs incurred $248,000

Manufacturing overhead applied $240,000

Overhead is underapplied by $8,000

c.Income Statement

Finished goods inventory, beginning $108,000

Cost of goods manufactured $964,000

Goods available for sale $1,072,000

Less:Finished goods inventory, ending $123,000

Unadjusted Cost of goods sold $949,000

Add: Underapplied Overhead $8,000

Adjusted Cost of Goods sold $957,000

Sales $1,282,000

Less:Adjusted cost of goods sold $957,000  

Gross Margin $325,000

Less:Selling and administrative expenses:

Administrative salaries $157,000

Selling costs $113,000

Depreciation $7,000

Net Operating Income $48,000