Problem - Cedar Hills Company produces reproductions of antique furniture at a plant located in rural North Dakota. Because there are hundreds of potential products, some of which are made only to order, the company uses a job-order costing system. On January 1, the start of the company's fiscal year, inventory account balances were as follows:
|
Raw Materials
|
31,800
|
|
Work in Process
|
29,000
|
|
Finished Goods
|
18,600
|
The company applies overhead costs to jobs on the basis of machine-hours.
- estimated total machine-hours of plant operation this year - 38,500 hours
- estimated total manufacturing overhead costs to be incurred this year - 196,350
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Transactions occurring during the year:
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AMOUNT
|
|
a. Raw materials purchased on account
|
156,800
|
|
b. Raw materials requisitioned for use in production
|
169,400
|
|
portion of total chargeable directly to jobs
|
106,800
|
|
c. Costs for employee services were incurred as follows:
|
|
|
Direct
|
128,900
|
|
Indirect
|
49,000
|
|
Sales Commissions
|
76,750
|
|
Administrative Salaries
|
49,240
|
|
d. Prepaid insurance expired during the year
|
17,420
|
|
portion related to factory operations (remainder was related to selling & administrative activities)
|
10,670
|
|
e. Utility costs incurred in the factory, all paid in cash.
|
26,500
|
|
f. Advertising costs incurred on account
|
19,500
|
|
g. Depreciation recorded on equipment
|
48,800
|
|
portion for equipment used in the factory (remaining amount was for equipment used in selling & administrative activities)
|
43,600
|
|
h. Manufacturing overhead was applied to production.
|
|
|
Machine hours of operating time during the year 39,600 hours
|
|
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i. Manufactured goods were transferred into the finished goods warehouse.
|
|
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Costs for transferred goods according to job cost sheets
|
442,660
|
|
j. Sales (all on account) to customers during the year
|
695,000
|
|
Cost of Goods Sold
|
433,260
|
REQUIRED:
A. Prepare journal entries to record the transactions listed above.
B. Use the supplied T-Accounts for the inventories, Manufacturing Overhead, and Cost of Goods Sold to post the relevant data from your journal entries to the T-Accounts. (Don't forget to enter the beginning balances in your inventory accounts.) Compute an ending balance in each account.
C. Is Manufacturing Overhead underapplied or overapplied for the year? Explain.
D. Prepare a journal entry to cost any balance in the Manufacturing Overhead account to Cost of Goods Sold.
E. Prepare an income statement for the year. It is not necessary to prepare a schedule of cost of goods manufactured. All information for the income statement is available in the journal entries and T-Accounts.