Question

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company’s inventory balances were as follows:

Raw materials	$	17,500
Work in process	$	9,760
Finished goods	$	29,280

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 36,300 machine-hours and incur $159,720 in manufacturing overhead cost. The following transactions were recorded for the year:

a.	Raw materials were purchased on account: $206,000.
b.	Raw materials were requisitioned for use in production: $193,000 (80% direct and 20% indirect).
c.	The following costs were incurred for employee services:

Direct labour	$	162,600
Indirect labour	$	27,600
Sales commissions	$	36,900
Administrative salaries	$	81,200

d.	Heat, power, and water costs were incurred in the factory: $43,350.
e.	Prepaid insurance expired during the year: $11,500 (85% relates to factory operations, and 15% relates to selling and administrative activities).
f.	Advertising costs were incurred, $51,500.
g.	Depreciation was recorded for the year: $61,800 (90% relates to factory operations, and 10% relates to selling and administrative activities).
h.	Manufacturing overhead cost was applied to production. The company recorded 40,600 machine-hours for the year.
i.	Goods that cost $493,100 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
j.	Sales for the year totalled $714,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $488,000.

Required:

1.	Prepare journal entries to record the transactions given above. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

      

2.	Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

     

3-a.	Is manufacturing overhead underapplied or overapplied for the year?
	Overapplied overhead Underapplied overhead

3-b.	Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

      

4.	Prepare an income statement for the year

Answer 1