Question

1) 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	$14,000	$22,000
Work in Process	27,000	9,000
Finished Goods	62,000	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 $231,000 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $315,000.

• Raw materials were requisitioned for use in production, $307,000 ($281,000 direct and $26,000 indirect).

• The following employee costs were incurred: direct labour, $377,000; indirect labour, $96,000; and administrative salaries, $172,000.

• Selling costs, $147,000.

• Factory utility costs, $10,000.                                                                    

• Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling and administrative activities.

• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours.

• Sales for the year totalled $1,253,000.

Required:

a. Prepare a schedule of cost of goods manufactured in good form.

b. Was the overhead underapplied or overapplied and by how much?

c. Prepare an income statement for the year in good form.

Answer 1

a schedule of cost of goods manufactured

Direct Raw materials $281,000

Direct Labor $377,000

Indirect Raw materials $26,000

Indirect Labor $96,000

Factory utility costs: $10,000

Depreciation - factory operations $120,000

Add Opening Work In Process $27,000

Less Closing Work In Process ($9,000)

cost of goods manufactured $928,000

Explanation:

a. Prepare a schedule of cost of goods manufactured.

Raw Materials Used in Manufacturing = $14,000+$315,000-$22,000

= $307,000

a schedule of cost of goods manufactured

Direct Raw materials $281,000

Direct Labor $377,000

Indirect Raw materials $26,000

Indirect Labor $96,000

Factory utility costs: $10,000

Depreciation - factory operations $120,000

Add Opening Work In Process $27,000

Less Closing Work In Process ($9,000)

cost of goods manufactured $928,000

b) Under Recovery = $14,000

Explanation:

b. Was the manufacturing overhead under- or overapplied

Factory Overheads Applied = Predetermined Rate × Actual Activity

Predetermined Rate = Budgeted Overheads/ Budgeted Activity

= $231,000/33,000 machine hours

=$7.00 per machine hour

Factory Overheads Applied = $7.00 × 34,000 machine hours

= $238,000

Actual Overheads

Indirect Raw materials $26,000

Indirect Labor $96,000

Factory utility costs: $10,000

Depreciation - factory operations $120,000

Total $252,000

Actual Overheads $252,000 > Factory Overheads Applied $238,000

Under Recovery = $14,000

c)  income statement

Particulars		Amount
Sales		1253000
Less: Variable Cost:
material	315000
labour( 377000+96000)	473000
Selling Cost	147000
manufacturing Overheads	231000
Factory utility costs	10000
		(1176000)
Contribution		77000
Less: Fixed Costs:
Depreciation	127000
administrative salaries	172000
		(299000)
Operatong Income/ (loss)		(222000)