Question

Carpenter Cornices, Ltd., produces a wide variety of cornice moldings for windows at a plant located in Evergreen Park, Illinois. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company’s fiscal year, inventory account balances were as follows:

Raw materials	$	12,800
Work in process	$	6,800
Finished goods	$	10,500

The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated $200,600 of manufacturing overhead for an estimated activity level of 59,000 machine-hours. During the year, the following transactions were completed (Assume all purchases and services were acquired on account):

a.	Raw materials purchased on account, $204,000.
b.	Raw materials requisitioned for use in production, $165,000 (materials costing $154,000 were chargeable directly to jobs; the remaining materials were indirect).
c.	Costs for employee services were incurred as follows:

Direct labor	$	112,000
Indirect labor	$	48,800
Sales commissions	$	35,000
Administrative salaries	$	54,000

d.	Prepaid insurance expired during the year, $28,500 ($17,900 of this amount related to factory operations, and the remainder related to selling and administrative activities).
e.	Utility costs incurred in the factory, $26,000.
f.	Advertising costs incurred, $15,000.
g.	Depreciation recorded on equipment, $40,000. ($26,000 of this amount was on equipment used in factory operations; the remaining $14,000 was on equipment used in selling and administrative activities.)
h.	Manufacturing overhead cost was applied to jobs, $?. (The company recorded 30,000 machine-hours of operating time during the year.)
i.	Goods that had cost $328,000 to manufacture according to their job cost sheets were completed.
j.	Sales (all on account) to customers during the year totaled $619,000. These goods had cost $327,000 to manufacture according to their job cost sheets. 1. Prepare journal entries to record the transactions for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 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. (Round your intermediate calculations to 2 decimal places. is Manufacturing Overhead underapplied or overapplied for the year? (Round your intermediate calculations to 2 decimal places.) Manufacturing overhead was by for the year.

3-bPrepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

Record the entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.\

4-

Prepare an income statement for the year. (Round your intermediate calculations to 2 decimal places.)

        

Answer 1

1	Ref.	Account titles and explanations			Debit	Credit
	a.	Raw materials			204000
		Accounts payable				204000
		(Raw materials purchased on account)
	b.	Work in process			154000
		Manufacturing overhead			11000
		Raw materials				165000
		(Raw materials requisitioned)
	c.	Work in process			112000
		Manufacturing overhead			48800
		Sales commission			35000
		Administrative salaries			54000
		Salaries and wages payable				249800
		(Costs for employee services were incurred)
	d.	Manufacturing overhead			17900
		Insurance expense			10600
		Prepaid insurance				28500
		(Prepaid insurance expired during the year)
	e.	Manufacturing overhead			26000
		Accounts payable				26000
		(Utility costs incurred)
	f.	Advertising expense			15000
		Accounts payable				15000
		(Advertising costs incurred)
	g.	Manufacturing overhead			26000
		Depreciation expense			14000
		Accumulated depreciation				40000
		(Depreciation recorded on equipment)
	h.	Work in process		(Note:1)	102000
		Manufacturing overhead				102000
		(Manufacturing overhead cost was applied to jobs)
	i.	Finished goods			328000
		Work in process				328000
		(Goods that had cost $328,000 to manufacture according
		to their job cost sheets were completed.)
	j.	Accounts receivable			619000
		Sales				619000
		(Sales to customers during the year)
		Cost of goods sold			327000
		Finished goods				327000
		(These goods had cost $327,000 to manufacture
		according to their job cost sheets.)
	Notes:
	1. Pre-determined overhead rate=Estimated manufacturing overhead/Estimated activity level=200600/59000=$3.4 per hour
	Applied overhead=Actual machine hours*pre-determined overhead rate=30000*3.4=102000
2					Raw material
				Beg. Bal		12800
				Accounts payable		204000
				Work in process			154000
				Manufacturing overhead			11000
						216800	165000
				End. Bal		51800
					Work in process
				Beg. Bal		6800
				Raw materials		154000
				Salaries and wages payable		112000
				Manufacturing overhead		102000
				Finished goods			328000
						374800	328000
				End. Bal		46800
					Finished goods
				Beg. Bal		10500
				Work in process		328000
				Cost of goods sold			327000
						338500	327000
				End. Bal		11500
					Manufacturing overhead
				Raw materials		11000
				Salaries and wages payable		48800
				Prepaid insurance		17900
				Accounts payable		26000
				Accumulated depreciation		26000
				Work in process			102000
						129700	102000
				End. Bal		27700
					Cost of goods sold
				Finished goods		327000
						327000	0
				End. Bal		327000
3-a.	Actual manufacturing overhead=$129700
	Applied iverhead=$102000
	Under applied overhead=129700-102000=27700
3-b.					Debit	Credit
		Cost of goods sold			27700
		Manufacturing overhead				27700
4		Income statement
	Sales					619000
	Less: Cost of goods sold			(327000+27700)		354700
	Gross margin					264300
	Less: Operating expenses
	Sales commission				35000
	Administrative salaries				54000
	Insurance expense				10600
	Advertising expense				15000
	Depreciation expense				14000	128600
	Net income					135700