Question

1. Bakerston Company is a manufacturing firm that uses job-onder costing. The company's inventory bal- ances were as follows at the beginning and end of the year. Raw materials Work in process Finished goods Beginning Balance $14,000 $27,000 $62,000 Ending Balance $22.000 $9,000 $77.000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,000 machine hours and incur 5231,000 in manufacturing overhead cost. The following transactions were recorded for the year: - Raw materials were purchased. $315.000 (there were no Indirect Materials at this company). The following employee costs were incurred: direct labor, $377,612, indirect labor, 595,110, and ad- ministrative salaries, $172,000. Selling costs, $147.887. • Factory utility costs, $10,919. • Depreciation for the year was $127,000 of which S120,000 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 31,823 ma- chine-hours. (Hint: you must calculate the predetermined overhead rate per machine hours and use it to apply overhead). Required (3 Points): a. Prepare a schedule of cost of goods manufactured b. Calculate Cost of Goods Sold (do not close the over- or under-applied Mfg. Overhead). c. Was the overhead underapplied or overapplied? By how much?

Answer 1

Calculation of Predetermined overhead rate :

Given that estimated manufacturing costs = $231,000 and Machine hours = 33,000

===> Predetermined overhead rate = $231,000/33,000 = $7 per machine hour.

a.

Bakerston Company Schedule of Cost of Goods Manufactured For the Year Ended
Direct Materials
Raw materials, beginning balance	$14,000
Add : raw materials purchased	$315,000
Raw materials available for use	$329,000
Less : raw materials, ending balance	$22,000
Direct materials used	$307,000
Direct labor	$377,612
Factory overhead applied*	$222,761
Total manufacturing costs	$907,373
Add : work in process, beginning balance	$27,000
Total cost of work in process	$934,373
Less : work in process, ending balance	$9,000
Cost of goods manufactured	$925,373

* Factory overhead applied = 31,823 X $7 = $222,761

b.Calculation of Cost of goods sold :

Cost of goods sold
Finished goods, beginning balance	$62,000
Add : Cost of goods manufactured	$925,373
Goods available for sale	$987,373
Less : finished goods, ending balance	$77,000
Cost of goods sold	$910,373

C.

Actual overhead cost = $95,110 + $10,919 + $120,000 = $226,029

Applied overhead cost = $222,761

===> Overhead cost is Underapplied by $3,268