Question

Custer Products manufactures garden tools. It uses a job costing system that allocates factory overhead on the basis of direct labor-costs. Budgeted factory overhead for the year 2019 was $558,000, and management budgeted $372,000 in direct labor costs. The company’s tax rate is 21% (Round income tax to the nearest dollar).

The trial balance of Custer Products, Inc. on April 30 is as follows:
   Cash……………………………………………… $23,000
   Accounts Receivable……………………………..   67,000
   Finished Goods………………………………….. 101,000
   Work in Process………………………………….   30,000
   Materials ………………………………………… 17,000                  
Prepaid factory Insurance.....……………………… 7,000
   Machinery and Equipment (cost)………………   264,000
   Mortgage payable (due 06/30/2028)……………                          $192,000

   Accumulated Depreciation………………………                                 70,000
   Additional Paid-in Capital………………………                              80,000

   Accounts Payable………………………………..                                 97,000
. Common Stock…………………………………                                   50,000
   Retained Earnings………………………………                                   20,000
   Total …………………………………………   $509,000                $509,000

During May 2019, the following transactions took place:

May 1. Purchased raw materials for $45,000 and factory supplies for $3,000 on account. (Record
            materials and supplies in the materials control account)
        2. Received a $50,000 loan from First National Bank to be repaid in 5 years.
       3. Declared a $1,500 cash dividend.  

       3. Issued raw materials to production, $52,000
        5. Paid factory utility bill, $10,230 in cash.
      15. Received a bill for May’s janitorial services, $4,500. This amount has not yet been paid.

      16. Used factory supplies costing $1,000. (Indirect manufacturing cost).
      20. Incurred research & development expense on account, $6,000.
     22. Paid other factory overhead costs, $12,500.
      23. Incurred selling and administrative expenses on account, $13,250.
      28. Paid cash dividend, $1,500.
     25. Incurred payroll costs of $45,000 (not yet paid). Of this amount, $30,000 were direct labor costs
             and $15,000 indirect labor cost.
      27. Incurred restructuring costs totaling $15,000 on account.

      28. Prepaid factory insurance expired, $1,750.
      28. Paid payroll costs, $45,000.
      30. Record depreciation for May. Depreciation rate is 10% per annum on the cost of machinery and equipment.
             One-fifth of this depreciation is for office equipment and the remainder is for factory machinery and equipment.
      30. Allocate manufacturing overhead costs to production on the basis of direct labor costs.
      31. Completed and transferred goods with a total cost of $95,000 to the finished goods storeroom.
      31. Sold goods costing $190,000 for $374,000. (Assume all sales were made on account).
     31. Paid accounts payable totaling, $158,000
      31. Collected accounts receivable in the amount of $320,000.
      31. Accrue $400 interest expense.
      31. Calculate the overallocated or underallocated overhead and close this amount to the Cost of Goods Sold account.

1. Compute the company’s factory overhead allocation rate for the year.
2. Prepare journal entries to record May transactions.  If needed round
    numbers to the nearest dollar.
3. Post the journal entries to the appropriate general ledger accounts.
4. Prepare a trial balance for May 2019.
5. Prepare a multiple-step income statement and a classified balance sheet for May 2019.

6. Record a journal entry for tax expense and post this entry to the general ledger.

7. Prepare journal entries to close the temporary accounts and post these entries to the general ledger.

Answer 1