Question

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company’s inventory balances were as follows:

Raw materials	$	16,500
Work in process	$	10,200
Finished goods	$	30,100

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 36,100 machine-hours and incur $155,230 in manufacturing overhead cost. The following transactions were recorded for the year:

1. Raw materials were purchased on account: $202,000.
2. Raw materials were requisitioned for use in production: $191,000 (80% direct and 20% indirect).
3. The following costs were incurred for employee services:

Direct labour	$	160,800
Indirect labour	$	27,200
Sales commissions	$	36,300
Administrative salaries	$	80,400

4. Heat, power, and water costs were incurred in the factory: $42,450.
5. Prepaid insurance expired during the year: $10,500 (85% relates to factory operations, and 15% relates to selling and administrative activities).
6. Advertising costs were incurred, $50,500.
7. Depreciation was recorded for the year: $60,600 (90% relates to factory operations, and 10% relates to selling and administrative activities).
8. Manufacturing overhead cost was applied to production. The company recorded 40,200 machine-hours for the year.
9. Goods that cost $484,400 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
10. Sales for the year totalled $704,700 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $479,200.

Required:

1. Prepare journal entries to record the transactions given above. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account. Use letters a,b,c,d,e,f,g,h,i,j in the first collum inside of full account name.

3-a. Is manufacturing overhead underapplied or overapplied for the year?

multiple choice

• Underapplied overhead

• Overapplied overhead

Answer 1

TR	Account titles & Explanations					Debit	Credit
a)	Raw materials					202,000
	Accounts payable						202,000
b)	work in process					152800
	Manufacturing overhead					38200
	Raw materials						191000
c)	work in process					160,800
	Manufacturing overhead					27,200
	Sales commission					36,300
	Administrative salaries expense					80,400
	Salaries and wages payable						304,700
d)	Manufacturing overhead					42,450
	Accounts payable						42,450
e)	Manufacturing overhead					8925
	insurance expense					1575
	Prepaid insurance						10500
f)	Advertising expense					50,500
	cash						50,500
g)	Manufacturing overhead					54540
	Depreciation expense					6060
	Accumulated Depreciation						60600
h)	Work in process					172860
	manufacturing overhead						172860
i)	finished goods					484,400
	work in process						484,400
j)	Accounts receivable					704,700
	sales						704,700
k)	cost of goods sold					479,200
	finished goods						479,200
2)	Raw materials					Manufacturing overhead
	Beg bal	16,500	191000	b)		Beg.bal	0	172860	h)
	a)	202,000				b)	38200
	end bal	27,500				c)	27,200
						d)	42,450
						e)	8925
						g)	54540
						End bal		1,545
	Work in process					cost of goods sold
	Beg bal	10,200	484,400	i)		Beg bal	0
	b)	152800				k)	479,200
	c)	160,800				End bal	479200
	d)	172860
	End bal	12,260
	Finished goods
	beg bal	30,100	479,200
	i)	484,400
	End bal	35,300
	3a)	overapplied overhead
	3b)	Event	General Journal			Debit	Credit
		1)	Manufacturing overhead			1,545
			Cost of goods sold				1,545