Question

Crimson Tide Company uses a job-order costing system. At Crimson Tide, overhead costs are applied to jobs on the basis of machine-hours.

For the current year, Crimson Tide estimated that its machines would work for a total of 26,000 machine-hours. Tide also estimated for the current year that it would incur $124,800 in manufacturing overhead cost.

The following transactions occurred during the year:

a. Raw materials requisitioned for use in production, $300,000 (80% direct and 20% indirect).

b. The following costs were incurred for employee services:

Direct labor	$	171,000
Indirect labor	$	29,000
Sales commissions	$	21,000
Administrative salaries	$	36,000

c. Total insurance costs were $21,000 Note: Of the total insurance cost, 90% relates to factory operations, and 10% relates to selling and administrative activities.

d. In the factory only, heat, power, and water costs incurred in the factory totalled $60,000.

e. Total depreciation recorded for the year was  $71,000 Note: Of the total depreciation recorded 85% relates to factory operations, and 15% relates to selling and administrative activities.

f. Advertising costs incurred was $61,000.

g. According to their job cost sheets, goods that cost $491,000 to manufacture were transferred to the finished goods warehouse.

h. Sales for the year totaled $722,000. The total cost to manufacture these goods according to their job cost sheets was $486,000.

i. The company actually used 51,000 machine-hours during the year.

Required:

1. Determine the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.).

2. Prepare an income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) (Round predetermined overhead rate to 2 decimal places.)

Answer 1

	Predetermined Overhead Rate=Estimated total manufacturing overhead cost/Estimated total amount of allocation base
1)
	Estimated total manufacturing overhead cost	$ 1,24,800.00
	Estimated total amount of allocation base	26000
	Predetermined Overhead rate=($124800/26000)	$               4.80
	Machine hours actually worked during the year	51000
	Manufacturing Overhead=(51000*$4.8)	$ 2,44,800.00
a)	WIP=($300000*80%)	240000
	Manufacturing Overhead=($300000*20%)	60000
	To Raw Material		300000
b)	WIP	171000
	Manufacturing Overhead	29000
	Sales Commission	21000
	Administerative Salaries	36000
	To Salaries & Wages Payable		257000
c)	Manufacturing Overhead($21000*90%)	18900
	Insurance Expenses=($21000*10%)	2100
	To Prepaid Insurance		21000
d)	Manufacturing Overhead	60000
	To Cash		60000
e)	Manufacturing Overhead($71000*85%)	60350
	Depreciation Expense=($71000*15%)	10650
	To Accumulated Depreciation		71000
f)	Advertisement Expenses	61000
	To Accounts Payable		61000
g)	Finished Goods	491000
	To WIP		491000
h)	Accounts Receivable	722000
	To Sales		722000
h)	Cost of goods sold	486000
	To Finished Goods		486000
(i)	WIP	244800
	To Manufacturing Overhead		244800
(i)	Manufacturing Overhead($244800-$228250)	16550
	To Cost of goods sold		16550
		Manufacturing Overhead
	Particular	Amt	Particular	Amt
	To Raw Material	$     60,000.00	By WIP(Predetermined Overhead)	$ 2,44,800.00
	To Salary & Wages Payable	$     29,000.00
	To Prepaid Insurance	$     18,900.00
	To Cash	$     60,000.00
	To Accumulated Depreciation	$     60,350.00
	To Balance (Overapplied Overhead)	$     16,550.00
		$ 2,44,800.00		$ 2,44,800.00
	Crimson Tide Company
2)	Income statement
	Sales		$                                7,22,000.00
	Cost of goods sold($486000-$16550)		$                                4,69,450.00
	Gross Margin		$                                2,52,550.00
	Selling & Administerative Expenses
	Sales Commission Expense	$     21,000.00
	Administerative Salaries Expense	$     36,000.00
	Advertisement Expense	$     61,000.00
	Depreciation Expense	$     10,650.00
	Insurance Expense	$       2,100.00
	Total Selling & Administerative Expenses		$                                1,30,750.00
	Net Income		$                                1,21,800.00