Baab Corporation is a manufacturing firm that uses job-order costing. The compan
ID: 2577550 • Letter: B
Question
Baab Corporation 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:
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 34,000 machine-hours and incur $306,000 in manufacturing overhead cost. The following transactions were recorded for the year:
Raw materials were purchased, $316,000.
Raw materials were requisitioned for use in production, $308,000 ($280,000 direct and $28,000 indirect).
The following employee costs were incurred: direct labor, $378,000; indirect labor, $97,000; and administrative salaries, $173,000.
Selling costs, $148,000.
Factory utility costs, $11,000.
Depreciation for the year was $187,000 of which $174,000 is related to factory operations and $13,000 is related to selling, general, and administrative activities.
Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,200 machine-hours.
Sales for the year totaled $1,330,000.
Required:
a. Prepare a schedule of cost of goods manufactured.
b. Was the overhead underapplied or overapplied? By how much?
c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.
Raw materials Work in process Finished Goods Beginning Ending Balance Balance $15,000 $23,00e $ 28,ee0 $1e,000 $63,000 $78,00eExplanation / Answer
a. SCHEDULE OF COST OF GOODS MANUFACTURED Machine hour rate($ per hour) $ 9.00 ($306000/34000) COST OF GOODS MANUFACTURED: A Beginning Work in process(WIP) $28,000 B Direct material $280,000 C Direct labor $378,000 D Manufacturing overhead applied $ 307,800 ($9*34200) E=A+B+C+D Total $993,800 F Less: Ending Work in process $10,000 G=E-F COST OF GOODS MANUFACTURED $983,800 b CALCULATION OF OVER/UNDER APPLIED OVERHEAD Actual Manufacturing Overhead Incurred: A Indirect materials $28,000 B Indirect labor $97,000 C Factory utilities $11,000 D Depreciation expenses $174,000 E=A+B+C+D Total actual Mfg. Overhead incurred $310,000 F Total overhead applied $ 307,800 ($9*34200) G=E-F Under applied overhead $2,200 c Cost of goods sold: A Beginning Finished goods $63,000 B Cost of goods manufactured $983,800 C Ending Finished goods $78,000 D=A+B-C Cost of goods sold: $968,800 E Add:Underapplied overhead $2,200 F=D+E Cost of goods sold(considering underapplied overhead) $971,000 INCOME STATEMENT A Sales $1,330,000 B Cost of goods sold $971,000 C=A-B Gross profit $359,000 Selling & Administrative expenses: D Administrative salaries $173,000 E Selling cost $148,000 F Depreciation expenses $13,000 G=D+E+F Total selling & administrative expenses $334,000 H=C-G Income from operations $25,000
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