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 .... ....... Work in Process ..................... Finished Goods ........................ $16,000 $10,000 $30,000 The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 36,000 machine-hours and incur $153,000 in manufacturing overhead cost. The following transactions were recorded for the year: a. Raw materials were purchased on account: $200,000. b. Raw materials were requisitioned for use in production: $190,000 (80% direct and 20% indirect). c. The following costs were incurred for employee services: Direct labour ......................... Indirect labour ........................ Sales commissions ..................... Administrative salaries.................. $160,000 $ 27,000 $ 36,000 $ 80,000 d. e f & Heat, power, and water costs were incurred in the factory: $42.000. Prepaid insurance expired during the year: $10,000 (90% relates to factory operations, and 10% relates to selling and administrative activities). Advertising costs were incurred, $50,000. Depreciation was recorded for the year: $60,000 (85% relates to factory operations, and 15% relates to selling and administrative activities). Manufacturing overhead cost was applied to production. The company recorded 40,000 machine- hours for the year. Goods that cost $480,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. Sales for the year totalled $700,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $475,000.

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 and ending balance in each account.

Answer 1

Predetermined overhead rate = $153000/36000 machine hours = $4.25 per machine hour

Manufacturing overhead applied = 40000 x $4.25 = $170000

2.

Raw Materials					Work in Process
Beg. Bal.	16000				Beg. Bal.	10000
a.	200000	190000	b.		b.	152000	480000	i.
					c.	160000
End. Bal.	26000				h.	170000
					End. Bal.	12000
Finished Goods					Manufacturing Overhead
Beg. Bal.	30000				b.	38000	170000	h.
i.	480000	475000	j.		c.	27000
					d.	42000
End. Bal.	35000				e.	9000
					g.	51000
					End. Bal.		3000
Cost of Goods Sold
j.	475000
End. Bal.	475000