Question

Frank 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:

	Beg balances	End balances
Raw Materials	$14,000	$22,000
Work In Process	$27,000	$9,000
Finished Goods	$62,000	$77,000

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 33,000 machine-hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $315,000.
• Raw materials were requisitioned for use in production, $307,000 ($281,000 direct and $26,000 indirect).
• The following employee costs were incurred: direct labor, $377,000; indirect labor, $96,000; and administrative salaries, $172,000.
• Selling costs, $147,000.
• Factory utility costs, $10,000.
• Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours.
• Sales for the year totaled $1,253,000.

Required [show all the calculations to receive full points - send via email]:

1. Prepare a schedule of cost of goods manufactured.
2. Was the overhead underapplied or overapplied? By how much?
3. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

a)	Schedule of Cost of Goods Manufactured
	Direct Materials			$ 281,000.00
	Direct Labor			$ 377,000.00
	Manu. OH applied		(W.N.1)	$ 238,000.00
	Total Manu. Cost for the period			$ 896,000.00
Add:	Beginning WIP			$   27,000.00
Less:	Ending WIP			$     9,000.00
	Cost of Goods Manufactured			$ 914,000.00

b)	Manufacturing OH
	Indirect Material			$   26,000.00
	Indirect Labor			$   96,000.00
	Factory Utility Costs			$   10,000.00
	Depreciation - Factory Operation			$ 120,000.00
	Total Actual Manu. OH incurred			$ 252,000.00
	Applied Manu. OH (W.N.1)			$ 238,000.00
	Underapplied OH			$   14,000.00

c)	Income Statement
	Sales			$ 1,253,000.00
Less:	Cost of Goods sold		(W.N.2)	$    913,000.00
	Gross Margin				$    340,000.00
Less:	Expenses:
	Adm. Salaries			$    172,000.00
	Selling Costs			$    147,000.00
	Depreciation			$         7,000.00
	Total Expenses				$    326,000.00
	Net Income				$      14,000.00

W.N.1
Predetermined OH rate			=	Budgeted OH / Budgeted Machine Hours
			=	$ 231000 / 33000
			=	$             7.00	per machine hour
Actual Machine Hours			=	34000
Predetermined OH rate			=	$             7.00	per machine hour
Manu. OH applied			=	$ 238,000.00

W.N.2
WIP
Beg. Bal	$   27,000.00	F.G	$ 914,000.00
D.M	$ 281,000.00
D.L	$ 377,000.00
Manu. OH	$ 238,000.00	End. Bal	$     9,000.00
	$ 923,000.00		$ 923,000.00
Finished Goods
Beg. Bal	$   62,000.00	COGS	$ 899,000.00
WIP	$ 914,000.00	End. Bal	$   77,000.00
	$ 976,000.00		$ 976,000.00
Adjusted COGS = $ 899000 + $ 14000 = $ 913000