Question

Morrison Company uses a job-order costing system to assign manufacturing costs to jobs. Its balance sheet on January 1 is as follows: Morrison Company Balance Sheet January 1 Assets Cash $ 43,050 Raw materials $ 9,500 Work in process 5,550 Finished goods 22,350 37,400 Prepaid expenses 2,525 Property, plant, and equipment (net) 117,000 Total assets $ 199,975 Liabilities and Stockholders' Equity Accounts payable $ 8,700 Retained earnings 191,275 Total liabilities and stockholders' equity $ 199,975 During January the company completed the following transactions: a. Purchased raw materials on account, $78,000 b. Raw materials used in production, $84,000 ($70,400 was direct materials and $13,600 was indirect materials). c. Paid $192,750 of salaries and wages in cash ($106,800 was direct labor, $37,650 was indirect labor, and $48,300 was related to employees responsible for selling and administration) d. Various manufacturing overhead costs incurred (on account) to support production, $45.600. e. Depreciation recorded on property, plant, and equipment, $60,800 (70% related to manufacturing equipment and 30% related to assets that support selling and administration). f. Various selling expenses paid in cash, $38,300. 9. Prepaid insurance expired during the month $1,550 (80% related to production, and 20% related to selling and administration). h. Manufacturing overhead applied to production, $140,200. 1. Cost of goods manufactured, $289,100. J. Cash sales to customers, $395,560.

Answer 1

The different aspects of manufacturing and selling of a products are considered and recorded to show the ending balance to be reported in Balance Sheet like, raw materials, work in process, finished goods, direct labor, manufacturing overhead, cash, accounts payable, etc.

1.

Transactions = PP&E (net) $117,000 Accounts Retained Payable Earnings $8,700 $191,275 78,000 = -48,300 45,600 Morrison Company Transaction Analysis For the Month Ended Jaunary 31 Raw Work in Finished Manufacturing Prepaid Cash Materials Process Goods Overhead Expenses $43,050 $9,500 $5,550 $22,350 $0 $2,525 78,000 -84,000 70,400 13,600 -192,750 106,800 37,650 45,600 42,560 -38,300 1,240 -1,550 140,200 -140,200 9,100 289, 100 395,560 -285,400 -74,800 -450 $132,760 $3,500 $33,850 $26,050 $0 $975 -60,800 = Beginning balances @1/1 (a) Raw material purchases (b) Raw materials used in production (c) Salaries and wages d) Various overhead costs (e) Depreciation (f Various selling expenses (g) Expiration of prepaid insurance (h) Manufacturing overhead applied Cost of goods manufactured () Sales (k) Cost of goods sold ( Payments to creditors (m) Underapplied overhead Ending balances @ 1/31 = -18,240 -38,300 -310 = = 395,560 -285,400 -74,800 -450 $57,500 $195,835 $56,200

Overapplied/ Underapplied overhead = Actual manufacturing overhead - Applied manufacturing overhead

Actual overhead = $13,600 + $37,650 + $45,600 + $42,560 + $1,240 = $140,650
Applied overhead = $140,200

Underapplied overhead = $140,650 -$140,200 = $450

When the actual overhead is more than the applied, it is said to be underapplied overhead.  

2.

The net operating income of Morrison Company for the month of January is $4,560.

Morrison Company Income statement For the Month Ended Jaunary 31 Particulars Amount Sales $395,560 Less: COGS -$285,400 Less: Underapplied overhead -$450 Gross profit $109,710 Less: Expenses Salaries & wages expense -$48,300 Depreciation expense $18,240 Selling expense -$38,300 Insurance expense -$310 -$105,150 Net Income $4,560