In: Accounting
Is manufacturing overhead under-applied or over-applied for the year? Please explain in a couple of paragraphs.
Hoover Inc. uses a job-order costing system. The company's inventory balances on February 1, the start of its fiscal year, were as follows:
Raw Materials Inventory |
$69,325 |
Work in Process Inventory |
$55,100 |
Finished Goods Inventory |
$81,256 |
During the year, the following transactions were completed:
Raw materials were purchased on account, $215,221.
Raw materials were issued from the storeroom for use in production, $198,000 (70% direct and 30% indirect).
Employee salaries and wages were accrued as follows: direct labor, $243,300; indirect labor, $98,750; and selling and administrative salaries, $72,340.
Utility costs were incurred in the factory, $79,233.
Advertising costs were incurred, $110,600.
Prepaid insurance expired during the year, $35,000 (80% related to factory operations, and 20% related to selling and administrative activities).
Depreciation was recorded, $192,100 (75% related to factory assets, and 25% related to selling and administrative assets).
Manufacturing overhead was applied to jobs at the rate of 160% of direct labor cost.
Goods that cost $720,200 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
Sales for the year totaled $1,293,300 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $725,825.
First Let us pass Journal Entries:
Then Make T accounts to further understand
Conclusion: