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	$	14,600	$	22,600
Work in process	$	27,600	$	9,600
Finished Goods	$	62,600	$	77,600

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 33,600 machine-hours and incur $275,520 in manufacturing overhead cost. The following transactions were recorded for the year:

Raw materials were purchased, $315,600.

Raw materials were requisitioned for use in production, $307,600 ($280,400 direct and $27,200 indirect).

The following employee costs were incurred: direct labor, $377,600; indirect labor, $96,600; and administrative salaries, $172,600.

Selling costs, $147,600.

Factory utility costs, $10,600.

Depreciation for the year was $163,000 of which $148,000 is related to factory operations and $15,000 is related to selling, general, and administrative activities.

Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,120 machine-hours.

Sales for the year totaled $1,290,000.

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

	predetermined overhead rate = estimated MOH/estimated machine hours
				275,520/33600
				8.2	per machine hours
		overhead applied = actual machine hrs* overhead rate
				34120*8.2
				279784
a)		Cost of goods manufactured
	Direct materials used
	Raw materials inventory,beginning					14,600
	Add :purchases of raw materials					315,600
	total raw materials available					330,200
	Deduct:raw materials inventory,ending					22,600
	Raw materials used in production					307,600
	less:Indirect materials					27,200
	Direct materials used						280,400
	direct labor						377,600
	manufacturing overhead applied						279784
	total manufacturing costs						937,784
	Add:Beginning work in process inventory						27,600
							965,384
	Deduct:ending work in process inventory						9,600
	Cost of goods manufactured						955,784
b)	Actual overhead
	Indirect material					27,200
	indirect labor					96,600
	Factory utility costs					10,600
	Depreciation-factory					148,000
	total actual overhead						282,400
	applied overhead						279784
	under applied						2,616
c)		cost of goods sold
	Beginning finished goods inventory					62,600
	Add cost of goods manufactured					955,784
	cost of goods available for sales					1,018,384
	less ending finished goods inventory					77,600
	unadjusted cost of goods sold					940,784
	Add:underapplied overhead					2,616
	adjusted cost of goods sold					943,400
		income statement
	sales					1,290,000
	less:cost of goods sold					943,400
	Gross profit					346,600
	Selling & administrative expense
	Administrative salaries				172,600
	selling cost				147,600
	depreciation selling & adm				15,000	335,200
	Net income					11,400