Question

Bakerston Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:

	Beginning Balance			Ending Balance
Raw materials	$	12,000		$	15,500
Work in process	$	32,500		$	14,800
Finished goods	$	108,000		$	124,000

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 17,100 machine-hours and incur $256,500 in manufacturing overhead cost. The following transactions were recorded for the year:

•	Raw materials were purchased, $411,000.
•	Raw materials were requisitioned for use in production, $407,500 ($379,000 direct and $28,500 indirect).
•	The following employee costs were incurred: direct labor, $339,000; indirect labor, $70,000; and administrative salaries, $160,000.
•	Selling costs, $112,000.
•	Factory utility costs, $26,000.
•	Depreciation for the year was $122,000 of which $112,000 is related to factory operations and $10,000 is related to selling, general, and administrative activities.
•	Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,900 machine-hours.
•	Sales for the year totaled $1,289,000.

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 for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

	predetermined overhead rate
	256500/17100
	15	per machine hour
	overhead applied
	15*14900
	223500
a)	Schedule of cost of goods manufactured
	Raw materials,beginning				12,000
	Add:purchase of raw materials				411,000
	total raw materials available				423,000
	Deduct:raw materials inventory,ending				15,500
	Raw materials used in production				407,500
	less:indirect materials				28,500
	Direct materials					379,000
	Direct labor					339,000
	manufacturing overhead applied					223500
	total manufacturing costs					941,500
	Add:Beginning work in process inventory					32,500
						974,000
	Deduct:Ending work in process inventory					14,800
	cost of goods manufactured					959,200
b)	Actual manufacturing overhead cost incurred:
	Indirect materials					28,500
	indirect labor					70,000
	factory utilities					26,000
	Factory depreciation					112,000
	manufacturing overhead cost incurred					236,500
	manufacturing overhead applied					223500
	overhead under applied					13,000
c)	cost of goods sold
	Beginning finished goods inventory					108,000
	Add:cost of goods manufactured					959,200
	goods available for sale					1,067,200
	Deduct:ending finished goods inventory					124,000
	unadjusted cost of goods sold					943,200
	Add:under applied overhead					13,000
	Adjusted cost of goods sold					956,200
	Income statement
	Sales					1,289,000
	cost of goods sold (adjusted)					956,200
	Gross margin					332,800
	less:Selling and administrative expense
	Administrative salaries				160,000
	Selling costs				112,000
	Depreciation				10,000	282,000
	net operating income					50,800