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	$	14,900	$	22,900
Work in process	$	27,900	$	9,900
Finished Goods	$	62,900	$	77,900

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 33,900 machine-hours and incur $298,320 in manufacturing overhead cost. The following transactions were recorded for the year:

Raw materials were purchased, $315,900.

Raw materials were requisitioned for use in production, $307,900 ($280,100 direct and $27,800 indirect).

The following employee costs were incurred: direct labor, $377,900; indirect labor, $96,900; and administrative salaries, $172,900.

Selling costs, $147,900.

Factory utility costs, $10,900.

Depreciation for the year was $181,000 of which $172,000 is related to factory operations and $9,000 is related to selling, general, and administrative activities.

Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,180 machine-hours.

Sales for the year totaled $1,320,000.

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

overhead rate =estimated overhead /estimated hours

= 298320/33900

= $ 8.8 per Hour

a)

schedule of cost of goods manufactured
Direct material used	280100
direct labor	377900
overhead applied [8.8*34180]	300784
Total manufacturing cost incurred	958784
beginning work in process	27900
less:ending WIP	(9900)
Cost of goods manufactured	976784

b)actual overhead = 27800 indirect material +96900 indirect labor +10900 factory utility+172000 depreciation  

= 307600

overhead underapplied /(overapplied) = 307600-300784

= 6816 underapplied

c)

cost of goods sold = beginning FG +cost of goods manufactured -ending FG

= 62900+976784-77900

=961784

Income statement
sales		1320000
less:cost of goods sold	961784
underapplied overhead	6816
Adjusted cost of goods sold		(968600)
Gross margin		351400
less:operating expense
selling and administrative expense [172900+147900+9000]		(329800)
income from operations		21600