Question

The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $94,500 of manufacturing overhead for an estimated activity level of $45,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows:

Raw materials	$	10,800
Work in process	$	4,400
Finished goods	$	8,900

During the year, the following transactions were completed:

1. Raw materials purchased on account, $ 169,000.
2. Raw materials used in production, $148,000 (materials costing $121,000 were charged directly to jobs; the remaining materials were indirect).
3. Costs for employee services were incurred as follows:

Direct labor	$	177,000
Indirect labor	$	287,800
Sales commissions	$	28,000
Administrative salaries	$	40,000

4. Rent for the year was $18,700 ($13,600 of this amount related to factory operations, and the remainder related to selling and administrative activities).
5. Utility costs incurred in the factory, $11,000.
6. Advertising costs incurred, $12,000.
7. Depreciation recorded on equipment, $23,000. ($18,000 of this amount related to equipment used in factory operations; the remaining $5,000 related to equipment used in selling and administrative activities.)
8. Manufacturing overhead cost was applied to jobs, $ ? .
1. Goods that had cost $226,000 to manufacture according to their job cost sheets were completed.
10. Sales for the year (all paid in cash) totaled $518,000. The total cost to manufacture these goods according to their job cost sheets was $219,000.

Required:

1. Prepare journal entries to record the transactions for the year.

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

3A. Is Manufacturing Overhead underapplied or overapplied for the year?

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

4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.

Required

• Journal entry worksheet

1. Raw Materials purchased on account, $169,000.
2. Raw materials used in production, $148,000 (materials costing $121,000 were charged directly to jobs; the remaining materials were indirect).
3. Cost for employee services incurred as follows: Direct labor $177,000 Indirect labor $287,800 Sales commissions $28,000 Administrative salaries $40,000.
4. Rent for during the year was $18,700 ($13,600 of this amount related to factory operations, and the remainder related to selling and administrative activities).
5. Utility cost incurred in the factory, $11,000.
6. Advertising cost incurred, $12,000.
7. Depreciation recorded on equipment, $23,000. ($ 18,000 of this amount related to equipment used in factory operations; the remaining $ 5,000 related to equipment used in selling and administrative activities.)
8. Manufacturing overhead cost was applied to jobs, $?.
1. Goods that had cost $226,000 to manufacture according to their job cost sheets were completed.

J(1)Sales for the year (all paid in cash) totaled $518,000.

J(2) The total cost to manufacture these goods according to their job cost sheets was $219,000.

Required 2:

Raw materials, Work in process, finished goods, Manufacturing overhead, and Cost of goods sold

REQ 3B	Record the entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. Transaction General Journal Debit Credit 1 REQ4 Gold Nest Company Income Statement For the Year Ended 0 Selling and administrative expenses: 0 $0		Overappliedradio button unchecked1 of 2 Underappliedradio button unchecked2 of 2

Answer 1

	predetermined overhead rate =			94500/45000
				210%
	Accounting titles & Explanations					debit	Credit
a)	Raw materials inventory					169,000
	cash						169,000
b)	work in process inventory					121,000
	Factory overhead					27,000
	Raw materials inventory						148,000
c)	Work in process inventory					177,000
	Factory overhead					287,800
	Sales commission expense					28,000
	Salaries expense					40,000
	cash						532,800
d)	Factory overhead					13,600
	Rent expense					5,100
	cash						18,700
e)	Factory overhead					11,000
	cash						11,000
f)	Advertising expense					12,000
	cash						12,000
g)	Factory overhead					18,000
	Depreciation expense					5,000
	Accumulated depreciation						23,000
h)	work in process inventory					371700
	Factory overhead		(177,000*210%)				371700
i)	finished goods inventory					226,000
	work in process inventory						226,000
j)	Cash					518,000
	Sales revenue						518,000
	cost of goods sold					219,000
	finished goods inventory						219,000
	T-Accounts
	Raw materials				Work in process
Bal	10,800				Bal	4,400
a)	169,000	148,000	b)		b)	121,000	226,000	i)
					c)	177,000
Bal	31,800				h)	371700
					Bal	448,100
					Manufacturing overhead
	Finished goods				beg.bal	0
Bal	8,900				b)	27,000	371700	h)
i)	226,000	219,000			c)	287,800
					d)	13,600
Bal	15,900				e)	11,000
					g)	18,000
							14,300	Bal
	cost of goods sold
Beg.bal	0
j)	219,000
3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					14,300
	Cost of goods sold						14,300
4)		Income Statement
	Sales						518,000
	less : cost of goods sold						204,700
	Gross margin						313,300
	less:Selling & administrative expense
	Sales comission					28,000
	Administrative salaries					40,000
	Rent exepense					5,100
	Advertising expense					12,000
	Depreciation expense					5,000	90,100
	Net operating income						223,200