Question

Baab Corporation is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:

	Beginning Balance		Ending Balance
Raw materials	$	14,800	$	22,800
Work in process	$	27,800	$	9,800
Finished Goods	$	62,800	$	77,800

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,800 machine-hours and incur $290,680 in manufacturing overhead cost. The following transactions were recorded for the year:

Raw materials were purchased, $315,800.

Raw materials were requisitioned for use in production, $307,800 ($280,200 direct and $27,600 indirect).

The following employee costs were incurred: direct labor, $377,800; indirect labor, $96,800; and administrative salaries, $172,800.

Selling costs, $147,800.

Factory utility costs, $10,800.

Depreciation for the year was $175,000 of which $170,000 is related to factory operations and $5,000 is related to selling, general, and administrative activities.

Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,160 machine-hours.

Sales for the year totaled $1,310,000.

Required:

a. Prepare a schedule of cost of goods manufactured.

b. Was the overhead underapplied or overapplied? By how much?

c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1