Durham Company uses a job-order costing system. The following transactions took

Question

Durham Company uses a job-order costing system. The following transactions took place last year:    

a. Raw materials requisitioned for use in production, $55,000 (85% direct and 15% indirect).

b. Factory utility costs incurred, $16,100.

c. Depreciation recorded on plant and equipment, $31,000. Three-fourths of the depreciation relates to factory equipment, and the remainder relates to selling and administrative equipment.

d. Costs for salaries and wages were incurred as follows:

          

e. Insurance costs incurred, $6,000 (85% relates to factory operations, and 15% relates to selling and administrative activities).

f. Miscellaneous selling and administrative expenses incurred, $19,500.

g. Manufacturing overhead was applied to production. The company applies overhead on the basis of 120% of direct labor cost.

h. Goods that cost $145,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

i. Goods that had cost $135,000 to manufacture according to their job cost sheets were sold for $230,000.

Direct labor $ 55,000 Indirect labor $ 19,500 Sales commissions $ 11,500 Administrative salaries $ 40,000 Required 1. Determine the underapplied or overapplied overhead for the year. 2. Prepare an income statement tor the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) Durham Company Income Statement For the Year Ended December 31

Explanation / Answer

1 Actual factory overhead =(55000*15%)+16100+(31000/4*3)+19500+(6000*85%)= $72200 Overhead applied = 55000*120%= $66000 Underapplied overhead = 72200-66000 = $6200 2 Sales revenue 230000 Cost of goods sold 141200 =135000+6200 Gross Margin 88800 Selling and Administrative expenses 79650 =(31000/4)+11500+40000+(6000*15%)+19500 Net operating income 9150

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