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	$	14,350	$	22,350
Work in process	$	27,350	$	9,350
Finished Goods	$	62,350	$	77,350

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 33,350 machine-hours and incur $256,795 in manufacturing overhead cost. The following transactions were recorded for the year:

Raw materials were purchased, $315,350.

Raw materials were requisitioned for use in production, $307,350 ($280,650 direct and $26,700 indirect).

The following employee costs were incurred: direct labor, $377,350; indirect labor, $96,350; and administrative salaries, $172,350.

Selling costs, $147,350.

Factory utility costs, $10,350.

Depreciation for the year was $148,000 of which $131,000 is related to factory operations and $17,000 is related to selling, general, and administrative activities.

Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,070 machine-hours.

Sales for the year totaled $1,267,000.

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

SCHEDULE OF COST OF GOODS MANUFACTURED
PARTICULARS						AMOUNT IN $
Raw material inventory as Direct Material(Direct material consumed)						280,650
Direct labour						377,350
Manufacturing Overheads applied (34070 MH @ $ 7.70 per MH)						262,339
FACTORY COST INCURRED DURING THE MONTH						920,339
Add: Beginning Balance of Work in process						27,350
Less: Ending Balance of Work in process						9,350
COST OF GOODS MANUFACTURED						938,339
SCHEDULE OF COST OFGOODS SOLD FOR STAR VIDEOS INC.
PARTICULARS						AMOUNT IN $
Cost of Goods manufactured (as computed above)						938,339
Add: Beginning inventory balance of Finished Goods						62,350
Cost of Goods available for sale						1,000,689
Less: Ending Inventory of Finished Goods						77,350
Cost of Goods to be sold						923,339
Add: Under-applied overheads						2,061
COST OF GOODS SOLD DURING THE MONTH						925,400
STATEMENT OF INCOME FOR WALLIS COMPANY
PARTICULARS						AMOUNT IN $
Sales Revenue						1,267,000
Less: Cost of Good sold (as computed above)						925,400
Gross Margin						341,600
Less: Selling and admin Expenses
	Admin Salaries					172350
	Selling cost					147350
	Depreciation					17,000
Net Income earned during the period						4,900
Note: Pre-determined OH rate: estimated Overheads / Estimated MH = $ 256795 / 33,350 MH = $ 7.70 per MH
Note:
Overheads Incurred:
Indirect material			26700
Indirect labour			96350
Factory utilities			10350
Depreciation			131000
Total overheads factory			264400
Less: OH applied			262339
(34070 MH @$7.70 per MH)
Under-applied overheads			2061