Question

Seton 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 $ 14,000 $ 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:

a. Raw materials were purchased, $315,000.

b. Raw materials were requisitioned for use in production, $307,000 ($281,000 direct and $26,000 indirect).

c. The following employee costs were incurred: direct labor, $377,000; indirect labor, $96,000.

d. Factory utility costs, $10,000.

e. Depreciation for the year was $120,000.

f. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours. Hint: calculate POHR and then apply to actual activity

5. Prepare a Cost of Goods Sold Schedule which should include the adjustment for underapplied or overapplied overhead Hint: difference between actual MOH costs incurred and MOH applied

6. Prepare journal entry (h) to move unadjusted cost of goods sold from Finished Goods to Cost of Goods Sold. Don’t forget to do T-account entry to Finished Goods.

7. Prepare journal entry (i) (and T-account entry where applicable) to close out underapplied or overapplied overhead in the Manufacturing Overhead account to Cost of Goods Sold.

computer writing

Answer 1

Solution 5:

Predetermined overhead rate = Estimated overhead / Estimated machine hours = $231,000 / 33000 = $7 per machine hour

Actual manufacturing overhead incurred = Indirect materials + Indirect labor + Factory utility cost + Depreciation

= $26,000 + $96,000 + $10,000 + $120,000 = $252,000

Manufacturing overhead applied = 34000 * $7 = $238,000

Underapplied overhead = $252,000 - $238,000 = $14,000

Seton Corporation
Schedule of Cost of goods manufactured and cost of goods sold
Particulars		Amount
Direct material consumed:
Beginning material inventory	$14,000.00
Add: Purchases	$315,000.00
Less: Ending material inventory	$22,000.00
Total material used	$307,000.00
Less: Indirect material	$26,000.00
Direct material used		$281,000.00
Direct labor		$377,000.00
Manufactuing Overhead applied		$238,000.00
Total manufacturing costs incurred in december		$896,000.00
Add: Beginning WIP		$27,000.00
Total manufacturing costs		$923,000.00
Less: Ending WIP		$9,000.00
Cost of goods manufactured		$914,000.00
Add: Beginning finished goods inventory		$62,000.00
Cost of goods available for sale		$976,000.00
Less: ending finished goods inventory		$77,000.00
Unadjusted cost of goods sold		$899,000.00
Add: Underapplied overhead		$14,000.00
Adjusted Cost of goods sold		$913,000.00

Solution 6:

Journal Entries - Seton Corporation
Event	Particulars	Debit	Credit
h	Cost of goods sold Dr	$899,000.00
	To Finished goods inventory		$899,000.00
	(To record cost of goods sold for inventor sold)

Solution 7:

Journal Entries - Seton Corporation
Event	Particulars	Debit	Credit
i	Cost of goods sold Dr	$14,000.00
	To Manufacturing overhead		$14,000.00
	(To close underapplied overhead to COGS)