Baab Corporation is a manufacturing firm that uses job-order costing. The compan
ID: 340856 • 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 33,350 machine-hours and incur $256,795 in manufacturing overhead cost. The following transactions were recorded for the year:
Raw materials were purchased, $315,350.
Raw materials were requisitioned for use in production, $307,350 ($280,650 direct and $26,700 indirect).
The following employee costs were incurred: direct labor, $377,350; indirect labor, $96,350; and administrative salaries, $172,350.
Selling costs, $147,350.
Factory utility costs, $10,350.
Depreciation for the year was $148,000 of which $131,000 is related to factory operations and $17,000 is related to selling, general, and administrative activities.
Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,070 machine-hours.
Sales for the year totaled $1,267,000.
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.
Beginning Balance Ending Balance Raw materials $ 14,350 $ 22,350 Work in process $ 27,350 $ 9,350 Finished Goods $ 62,350 $ 77,350Explanation / Answer
SCHEDULE OF COST OF GOODS MANUFACTURED PARTICULARS AMOUNT IN $ Raw material inventory as Direct Material(Direct material consumed) 280,650 Direct labour 377,350 Manufacturing Overheads applied (34070 MH @ $ 7.70 per MH) 262,339 FACTORY COST INCURRED DURING THE MONTH 920,339 Add: Beginning Balance of Work in process 27,350 Less: Ending Balance of Work in process 9,350 COST OF GOODS MANUFACTURED 938,339 SCHEDULE OF COST OFGOODS SOLD FOR STAR VIDEOS INC. PARTICULARS AMOUNT IN $ Cost of Goods manufactured (as computed above) 938,339 Add: Beginning inventory balance of Finished Goods 62,350 Cost of Goods available for sale 1,000,689 Less: Ending Inventory of Finished Goods 77,350 Cost of Goods to be sold 923,339 Add: Under-applied overheads 2,061 COST OF GOODS SOLD DURING THE MONTH 925,400 STATEMENT OF INCOME FOR WALLIS COMPANY PARTICULARS AMOUNT IN $ Sales Revenue 1,267,000 Less: Cost of Good sold (as computed above) 925,400 Gross Margin 341,600 Less: Selling and admin Expenses Admin Salaries 172350 Selling cost 147350 Depreciation 17,000 Net Income earned during the period 4,900 Note: Pre-determined OH rate: estimated Overheads / Estimated MH = $ 256795 / 33,350 MH = $ 7.70 per MH Note: Overheads Incurred: Indirect material 26700 Indirect labour 96350 Factory utilities 10350 Depreciation 131000 Total overheads factory 264400 Less: OH applied 262339 (34070 MH @$7.70 per MH) Under-applied overheads 2061
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