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		$	15,300
Work in process	$	32,400		$	14,900
Finished goods	$	106,000		$	122,000

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 17,600 machine-hours and incur $264,000 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, $407,100 ($385,000 direct and $22,100 indirect).
•	The following employee costs were incurred: direct labor, $337,000; indirect labor, $74,000; and administrative salaries, $160,000.
•	Selling costs, $111,000.
•	Factory utility costs, $30,000.
•	Depreciation for the year was $125,000 of which $113,000 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 14,300 machine-hours.
•	Sales for the year totaled $1,286,000.

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. (Input all amounts as positive values.)

Answer 1

Answer a

		Amnt$	Amnt$
Raw Material - Opening Bal		11,400
Add
Raw Material Purchase		4,11,000
Total Material Available		4,22,400
Less - Closing raw Material		15,300
Raw Material used in Production			4,07,100	A
As per Question
Less: Certain Raw material Indirect use			22,100	B
Net Raw Material used in Production			3,85,000	(A-B)
Add
Direct Labour			3,37,000
Manufacturing OH
( 14300 Hrs *@$15/ hr)			2,14,500
Total Manufacturing Cost			9,36,500
Add
Opening WIP			32,400
Less
Closing WIP			14,900
Cost of Goods Manuafctured			9,54,000

Ans b

Overhead Under applied / Over applied
Actual Manufacturing Overhead			Amnt$
Indirect Material			22,100
Indirect Labour			74,000
Factory Utility cost			30,000
Depreciation relates to Factory			1,13,000
Total Actual Manufacturing Overhead			2,39,100
Overhead applied( as above)			2,14,500
Underapplied Overhead			24,600

Ans C

Now calculate Cost of Goods sold after adjusted Finished Goods
movement + Underapplied OH
			Amnt$
Cost of Goods Manuafctured			9,54,000
( as above)
Add- Opening Finished Goods			1,06,000
Cost of goods available for sale			10,60,000
Less- closing Finished Goods			1,22,000
Cost of goods sold available ( before OH adjustment)			9,38,000
Add - Underapplied OH ( as above)			24,600
Cost of goods Sold ( adjusted)			9,62,600
		Amnt$	Amnt$
Sale Price			12,86,000
Less
Cost of goods Sold ( adjusted)			9,62,600
Gross Profit			3,23,400
Less
Selling and G&A
Administrative Salaries		1,60,000
Depreciation other than Operation		12,000
Selling cost		1,11,000
Total Selling & GA cost			2,83,000
Net Profit			40,400