Assignment
Aucton Corporation is a manufacturing company that uses activity-based costing for its external financial reports. The company's activity cost pools and associated data for the coming year appear below:
|
Activity Cost Pool
|
Actual Activity
|
Estimated Overhead Cost
|
Actual Activity
|
|
Machining
|
Machine-hours
|
$180,000
|
1,000 MHs
|
|
Purchase orders
|
Number of orders
|
$90,000
|
600 orders
|
|
Parts management
|
Number of part types
|
$60,000
|
300 part types
|
|
Testing
|
Number of tests
|
$150,000
|
250 tests
|
|
General factory
|
Direct labor-hours
|
$280,000
|
20,000 DLHs
|
At the beginning of the year, the company had inventory balances as follows:
Raw materials $7,000
Work in process $6,000
Finished goods $10,000
The following transactions were recorded for the year:
a. Raw materials were purchased on account, $595,000.
b. Raw materials were withdrawn from the storeroom for use in production, $600,000 ($560,000 direct and $40,000 indirect).
c. The following costs were incurred for employee services: direct labor, $90,000; indirect labor, $300,000; sales commissions, $85,000; and administrative salaries, $245,000.
d. Sales travel costs were incurred, $38,000.
e. Various factory overhead costs were incurred, $237,000.
f. Advertising costs were incurred, $190,000.
g. Depreciation was recorded for the year, $270,000 ($210,000 related to factory operations and $60,000 related to selling and administrative activities).
h. Manufacturing overhead was applied to products. Actual activity for the year was as follows:
|
Activity Cost Pool
|
Actual Activity
|
|
Machining
|
1,050 MHs
|
|
Purchase orders
|
580 orders
|
|
Parts management
|
330 part types
|
|
Testing
|
265 tests
|
|
General factory
|
21,000 DLHs
|
i. Goods were completed and transferred to the finished goods warehouse. According to the company's activity-based costing system, these finished goods cost $1,450,000 to manufacture.
Goods were sold on account to customers during the year for a total of $2,100,000. According to the company's activity-based costing system, the goods cost $1,400,000 to manufacture.
Required:
1. Compute the predetermined overhead rate (i.e., activity rate) for each activity cost pool.
2. Prepare journal entries to record transactions (a) through (j) above:
3. Post the entries in part (2) above to T-accounts.
4. Compute the underapplied or overapplied manufacturing overhead cost. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. Post the entry to the appropriate T-accounts.
5. Prepare an income statement for the year.