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 $ 11,700 $ 15,800
Work in process $ 32,700 $ 14,600
Finished goods $ 102,000 $ 121,000
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 17,500 machine-hours and incur $262,500 in manufacturing overhead cost. The following transactions were recorded for the year:
• Raw materials were purchased, $415,000.
• Raw materials were requisitioned for use in production, $410,900 ($382,000 direct and $28,900 indirect).
• The following employee costs were incurred: direct labor, $332,000; indirect labor, $71,000; and administrative salaries, $154,000.
• Selling costs, $115,000.
• Factory utility costs, $27,000.
• Depreciation for the year was $124,000 of which $110,000 is related to factory operations and $14,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,200 machine-hours.
• Sales for the year totaled $1,283,000.
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

Part a

Cost of goods manufactured

Beginning Work In Process Inventory $32,700

Add Manufacturing Costs :

Raw Materials Cost $410,900

Direct Labor $332,000

Applied Overheads $213,000 $955,900

Less Ending Work In Process Inventory ($14,600)

Cost of Goods Manufactured $974,000

Part b

Under-applied overheads = $23,900

Part c

income statement for the year

Sales $1,283,000

Less Costs of Sales

Beginning Finished Goods Inventory $102,000

Add Cost of Goods Manufactured $974,000

Less Ending Finished Goods Inventory ($121,000)

$1,197,000

Add Under - Applied Overheads $23,900 ($1,220,900)

Gross Profit $62,100

Step-by-step explanation:

Applied Overheads = $262,500 / 17,500 x 14,200 = $213,000

Raw Materials Cost = $11,700 + $415,000 - $15,800 = $410,900

Actual Overheads = $28,900 + $71,000 + $27,000 + $110,000 = $236,900

Under-applied overheads = $236,900 - $213,000 = $23,900