3. Baab Corporation inventory balances were as follows at the beginning and end

Question

3. Baab Corporation inventory balances were as follows at the beginning and end of the year is a manufacturing firm that uses job-order costing. The company's Beginning Ending Raw materials Work in process Finished Goods Balance Balance S 14,000 S 22,000 S 27,000 9,000 S 62,000 S 77,000 The company applies overhead to jobs using a predeternmined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,000 machine-hours and incur $231,000 in manufacturing overbead cost. The following transactions were recorded for the year Raw materials were purchased, $315,000. . Raw materials were requisitioned for use in production, $307,000 (5281,000 direct and $26,000 indirect). The following employee costs were incurred: direct labor, $377.000, indirect labor, $96,000, and administrative salaries, $172,000. Selling costs, $147,000 .Factory utility costs, S10,000. . Depreciation for the year was $127,000 of which S120,000 is related to factory operations and $7,000 is related to selling, gencral, and administrative activities. year was 34,000 machine-hours. Sales for the year totaled $1,253,000 Manufacturing overhenad was applied to jobs. The actual level of activity for the Required: a. Prepare the journal entries for the above transactions b. Prepare a schodule of cost of goods manufactured c. Was the overhead underapplied or overapplied? By how macht? d. Prepare an income statement for the year. The company closes any underappliad or overapplied overhead to Cost of Goods Sold

Explanation / Answer

a) Journal entries Accounting titles & explanations Debit Credit Raw materials inventory 315,000 Accounts payable 315,000 Work in process inventory 281,000 Manufacturing overhead 26,000 Raw materials inventory 307,000 work in process inventory 377,000 manufacturing overhead 96,000 Administrative salary expense 172,000 Factory wages payable 645,000 Selling expense 147,000 cash 147,000 Manufacturing overhead 10,000 Accounts payable/utilities payable 10,000 Manufacturing overhead 120,000 Depreciation expense 7,000 Accumulated depreciation 127,000 work in process inventory 238000 manufacturing overhead 238000 Accounts receivable 1,253,000 sales 1,253,000 predetermined overhead rate = estimated MOH/estimated machine hours 231,000/33000 7 per machine hours 34000*7 238000 overhead applied = actual machine hrs* overhead rate b) Direct materials used Raw materials inventory,beginning 14,000 Add :purchases of raw materials 315,000 total raw materials available Cost of goods manufactured 329,000 Deduct:raw materials inventory,ending 22,000 Raw materials used in production 307,000 less:Indirect materials 26,000 Direct materials used 281,000 direct labor 377,000 manufacturing overhead applied 238000 total manufacturing costs 896,000 Add:Beginning work in process inventory 27,000 923,000 Deduct:ending work in process inventory 9,000 Cost of goods manufactured 914,000 c) Actual overhead Indirect material 26,000 indirect labor 96,000 Factory utility costs 10,000 Depreciation-factory 120,000 total actual overhead 252,000 applied overhead 238000 under applied 14,000 c) Beginning finished goods inventory 62,000 Add cost of goods manufactured 914,000 cost of goods available for sales 976,000 less ending finished goods inventory cost of goods sold 77,000 unadjusted cost of goods sold 899,000 Add:underapplied overhead 14,000 adjusted cost of goods sold 913,000 income statement sales 1,253,000 less:cost of goods sold 913,000 Gross profit 340,000 Selling & administrative expense income statement Administrative salaries 172,000 selling cost 147,000 depreciation selling & adm 7,000 326,000 Net income 14,000

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