Question

In: Accounting

Ravsten Company uses a job-order costing system.    The company applies overhead cost to jobs on...

Ravsten Company uses a job-order costing system.

  

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 25,000 machine-hours and incur $118,750 in manufacturing overhead cost. The following transactions occurred during the year:

  

a. Raw materials requisitioned for use in production, $244,000 (70% direct and 30% indirect).

b. The following costs were incurred for employee services:

Direct Labor $170,000

Indirect Labor $28,000

Sales commisions $20,000

Administrative salaries $35,000

c. Heat, power, and water costs incurred in the factory, $51,000.

d. Insurance costs, $20,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

e. Advertising costs incurred, $60,000.

f. Depreciation recorded for the year, $70,000 (75% relates to factory operations, and 25% relates to selling and administrative activities).

g. The company used 50,000 machine-hours during the year.

h. Goods that cost $490,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

i. Sales for the year totaled $720,000. The total cost to manufacture these goods according to their job cost sheets was $485,000.

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.)

Solutions

Expert Solution

CLASSIFICATION OF COST
TOTAL MATERIAL LABOUR MFG. OH OTHER PERIOD COST
Material issued 244000 170800 73200
labour cost 253000 170000 28000 55000
Heat Power andn lighting 51000 51000
Insurance 20000 16000 4000
Advertising 60000 60000
Dpreciation 70000 52500 17500
Total 698000 170800 170000 220700 136500
Pre-determined OH rate: Estimated Overheads/ Machine hours
($118750 / 25000 MH) = $4.75 per MH
Req 1.
Overheads incurred (as computed above) 220700
Less: Overheads applied 237500
(50,000 MH @ $4.75 per MH)
Over-applied overheads 16800
Req 2:
INCOME STATEMENT
Sales revenue 720000
Less: COGS 485000
Gross margin 235000
Less: Period cost
Sales commission 20000
Admin salaries 35000
Insurance 4000
Advertising 60000
Depreciation 17500
Net Operating Income 98500

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