Question

Bakerston Company 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	$	11,400		$	15,600
Work in process	$	32,800		$	14,200
Finished goods	$	106,000		$	123,000

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 17,400 machine-hours and incur $261,000 in manufacturing overhead cost. The following transactions were recorded for the year:

•	Raw materials were purchased, $411,000.
•	Raw materials were requisitioned for use in production, $406,800 ($385,000 direct and $21,800 indirect).
•	The following employee costs were incurred: direct labor, $338,000; indirect labor, $77,000; and administrative salaries, $159,000.
•	Selling costs, $111,000.
•	Factory utility costs, $27,000.
•	Depreciation for the year was $124,000 of which $112,000 is related to factory operations and $12,000 is related to selling, general, and administrative activities.
•	Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,900 machine-hours.
•	Sales for the year totaled $1,289,000.

Required:
a.	Prepare a schedule of cost of goods manufactured in good form. (Do not round predetermined overhead rate. Input all amounts as positive values.)

     

b.	Was the overhead underapplied or overapplied? By how much? (Do not round predetermined overhead rate. Input the amount as a positive value.)

    

c.	Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

Calculation of predetermined overhead rate:

Estimated total manufacturing overhead(a)	$261,000
Estimated total machine hours (b)	17,400
Predetermined overhead rate (a÷b)	$15
Actual total machine hours (c)	14,900
Predetermined overhead rate (d)	$15
Overhead applied (c×d)	$223,500

a.Schedule of cost of goods manufactured

Direct materials
Raw materials inventory, beginning	$11,400
Add: Purchase of Raw materials	$411,000
Raw materials available for use	$422,400
Less: Raw materials inventory, Ending	($15,600)
Raw materials used in production	$406,800
Less: Indirect materials	($21,800)
Direct materials		$385,000
Direct Labour		$338,000
Manufacturing overhead applied		$223,500
Total manufacturing costs		$946,500
Add: beginning WIP Inventory		$32,800
		$979,300
Less: Ending WIP Inventory		($14,200)
Cost of goods manufactured		$965,100

b. Overhead underapplied or Overapplied

Actual manufacturing overhead cost incurred

Indirect materials	$21,800
Indirect labour	$77,000
Factory utilities	$27,000
Factory depreciation	$112,000
Manufacturing overhead cost incurred	$237,800
Manufacturing overhead applied	$223,500
Underapplied Overhead	$14,300

c. Income statement

Beginning finished goods	$106,000
Cost of goods manufactured	$965,100
Goods available for sale	$1,071,100
Ending finished goods inventory	($123,000)
Unadjusted cost of goods sold	$948,100
Add: underapplied Overhead	($14,300)
Adjusted cost of goods sold	$962,400

Sales		$1,289,000
Cost of goods sold (adjusted)		($962,400)
Gross margin		$326,600
Less; selling and administrative expense
Administrative expense	$159,000
Selling costs	$111,000
Depreciation	$12,000	($282,000)
Net operating income		$44,600

_____×_____

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