Bakerston Company is a manufacturing firm that uses job-order costing. The compa

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: Raw materials Work in process Finished goods Beginning Balance $ 11,700 $ 32,900 $109,000 Ending Balance $ 15,900 $ 14,700 $125,000 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 18,000 machine-hours and incur $270,000 in manufacturing overhead cost. The following transactions were recorded for the year: Raw materials were purchased, $411,000. Raw materials were requisitioned for use in production, $406,800 ($386,000 direct and $20,800 indirect) The following employee costs were incurred: direct labor, $333,000; indirect labor, $71,000; and administrative salaries, $154,000 Selling costs, $114,000 Factory utility costs, $28,000 Depreciation for the year was $121,000 of which $110,000 is related to factory operations and $11,000 is related to selling, general, and administrative activities Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,300 machine-hours. Sales for the year totaled $1,288,000

Explanation / Answer

a.

Schedule of cost of goods manufactured

Estimated total manufacturing overhead (a)

$ 270,000

Estimated total machine-hours (b)

18,000

Predetermined overhead rate (a) ÷ (b)

$ 15

Actual total machine-hours (a)

14,300

Predetermined overhead rate (b)

$ 15

Overhead applied (a) × (b)

$ 214,500

Direct materials:

Raw materials inventory, beginning

$ 11,700

Add: purchases of raw materials

$ 411,000

Total raw materials available

$ 422,700

Deduct: raw materials inventory, ending

$ 15,900

Raw materials used in production

$ 406,800

Less: indirect materials

$ 20,800

Direct materials

$ 386,000

Direct labor

$ 333,000

Manufacturing overhead applied

$ 214,500

Total manufacturing costs

$ 933,500

Add: Beginning work in process inventory

$ 32,900

$ 966,400

Deduct: Ending work in process inventory

$ 14,700

Cost of goods manufactured

$ 951,700

b.

Indirect materials

$ 20,800

Indirect labor

$ 71,000

Factory utilities

$ 28,000

Factory depreciation

$ 110,000

Manufacturing overhead cost incurred

$ 229,800

Manufacturing overhead applied

$ 214,500

Overhead is underapplied by

$ 15,300

c.

Income Statement

Beginning finished goods inventory

$ 109,000

Cost of goods manufactured

$ 951,700

Goods available for sale

$ 1,060,700

Ending finished goods inventory

$ 125,000

Unadjusted cost of goods sold

$ 935,700

Add: Underapplied overhead

$ 15,300

Adjusted cost of goods sold

$ 951,000

Sales

$ 1,288,000

Cost of goods sold (adjusted)

$ 951,000

Gross margin

$ 337,000

Less selling and administrative expenses:

Administrative salaries

$ 154,000

Selling costs

$ 114,000

Depreciation

$ 11,000

$ 279,000

Net operating income

$ 58,000

Schedule of cost of goods manufactured

Estimated total manufacturing overhead (a)

$ 270,000

Estimated total machine-hours (b)

18,000

Predetermined overhead rate (a) ÷ (b)

$ 15

Actual total machine-hours (a)

14,300

Predetermined overhead rate (b)

$ 15

Overhead applied (a) × (b)

$ 214,500

Direct materials:

Raw materials inventory, beginning

$ 11,700

Add: purchases of raw materials

$ 411,000

Total raw materials available

$ 422,700

Deduct: raw materials inventory, ending

$ 15,900

Raw materials used in production

$ 406,800

Less: indirect materials

$ 20,800

Direct materials

$ 386,000

Direct labor

$ 333,000

Manufacturing overhead applied

$ 214,500

Total manufacturing costs

$ 933,500

Add: Beginning work in process inventory

$ 32,900

$ 966,400

Deduct: Ending work in process inventory

$ 14,700

Cost of goods manufactured

$ 951,700

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