Sovereign Millwork, Ltd., produces reproductions of antique residential moldings at a plant located in Manchester, England. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company's fiscal year, inventory account balances were as follows:
Raw materials £ 10,000
Work in process £ 4,000
Finished goods £ 8,000
The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated £99,000 of manufacturing overhead for an estimated activity level of 45,000 machine-hours. During the year, the following transactions were completed:
a. Raw materials purchased on account, £160,000.
b. Raw materials requisitioned for use in production, £140,000 (materials costing £120,000 were chargeable directly to jobs; the remaining materials were indirect).
c. Costs for employee services were incurred as follows:
Direct labor £ 90,000
Indirect labor £ 60,000
Sales commissions £ 20,000
Administrative salaries £ 50,000
d. Prepaid insurance expired during the year, £18,000 (£13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities).
e. Utility costs incurred in the factory, £10,000.
f. Advertising costs incurred, £15,000.
g. Depreciation recorded on equipment, £25,000. (£20,000 of this amount was on equipment used in factory operations; the remaining £5,000 was on equipment used in selling and administrative activities.)
h. Manufacturing overhead cost was applied to jobs, £?. (The company recorded 50,000 machine-hours of operating time during the year.)
i. Goods that had cost £310,000 to manufacture according to their job cost sheets were completed.
j. Sales (all on account) to customers during the year totaled £498,000. These goods had cost £308,000 to manufacture according to their job cost sheets.
3-a. Is manufacturing overhead underapplied or overapplied for the year?
3-b. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (Round your intermediate calculations to 2 decimal places. Omit the "£" sign in your response.)
General Journal
Debit
Credit
4. Prepare an income statement for the year. (Input all amounts as positive values. Round your intermediate calculations to 2 decimal places. Omit the "£" sign in your response.)
Sovereign Millwork, Ltd.
Income Statement
For the Year Ended June 30