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Item 4

Item 4 20 points

Problem 5-18 Journal Entries; T-Accounts; Cost Flows [LO4, LO5, LO7]

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company’s inventory balances were as follows:

Raw materials	$	22,000
Work in process	$	12,400
Finished goods	$	31,200

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 37,200 machine-hours and incur $152,520 in manufacturing overhead cost. The following transactions were recorded for the year:

1. Raw materials were purchased on account: $224,000.
2. Raw materials were requisitioned for use in production: $202,000 (85% direct and 15% indirect).
3. The following costs were incurred for employee services:

Direct labour	$	169,600
Indirect labour	$	29,400
Sales commissions	$	39,600
Administrative salaries	$	84,800

4. Heat, power, and water costs were incurred in the factory: $47,400.
5. Prepaid insurance expired during the year: $16,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
6. Advertising costs were incurred, $56,000.
7. Depreciation was recorded for the year: $67,200 (75% relates to factory operations, and 25% relates to selling and administrative activities).
8. Manufacturing overhead cost was applied to production. The company recorded 42,400 machine-hours for the year.
9. Goods that cost $511,900 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
10. Sales for the year totalled $755,800 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $504,500.

Required:

1. Prepare journal entries to record the transactions given above. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

3-a. Is manufacturing overhead underapplied or overapplied for the year?

• Underapplied overhead

• Overapplied overhead

3-b. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (Do not round intermediate calculations and round your final answers to 2 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. Prepare an income statement for the year. (Round intermediate calculations to nearest whole number.)

Answer 1

1)	Journal Entries
	Particulars				Debit	Credit
a)	R.M				$ 224,000.00
	To Accounts Payable					$ 224,000.00
b)	WIP				$ 171,700.00
	Factory OH				$   30,300.00
	To R.M					$ 202,000.00
c)	WIP				$ 169,600.00
	Manu. OH				$   29,400.00
	Sales commissions expense				$   39,600.00
	Adm. Salaries expense				$   84,800.00
	To Salaries and wages payable					$ 323,400.00
d)	Sales Travel Expense				$   47,400.00
	To Accounts Payable					$   47,400.00
e)	Manu. OH				$   12,800.00
	Insurance Expense				$     3,200.00
	To Prepaid Insurance					$   16,000.00
f)	Advertising Expense				$   56,000.00
	To Accounts Payable					$   56,000.00
g)	Manu. OH				$   50,400.00
	Depreciation Expense				$   16,800.00
	To Accumulated Depreciation					$   67,200.00
h)	WIP				$ 173,840.00
	To Manu. OH					$ 173,840.00
	($ 152520 / 37200) x 42400
i)	Finished Goods				$ 511,900.00
	To WIP					$ 511,900.00
j)	Accounts Receivable				$ 755,800.00
	To Sales					$ 755,800.00
	Cost of Goods Sold				$ 504,500.00
	To Finished Goods					$ 504,500.00

2)		Raw Materials					WIP					Finished Goods
		Beg. Bal	$   22,000.00	b)	$ 202,000.00		Beg. Bal.	$    12,400.00	i)	$ 511,900.00		Beg. Bal.	$    31,200.00	j)	$ 504,500.00
		a)	$ 224,000.00	End. Bal.	$   44,000.00		b)	$ 171,700.00	End. Bal.	$    15,640.00		i)	$ 511,900.00	End. Bal.	$    38,600.00
			$ 246,000.00		$ 246,000.00		c)	$ 169,600.00					$ 543,100.00		$ 543,100.00
							h)	$ 173,840.00
								$ 527,540.00		$ 527,540.00
		Manufacturing OH					Cost of Goods sold
		b)	$   30,300.00	h)	$ 173,840.00		j)	$ 504500.00
		c)	$   29,400.00
		e)	$   12,800.00
		g)	$   50,400.00

3)
a)	Actual OH expenses		$ 122,900.00
	Applied OH		$ 173,840.00
	Overapplied		$   50,940.00
b)	Manu. OH		$   50,940.00
	To Cost of Goods Sold			$ 50,940.00

	4)
	Income Statement
	Sales				$ 755,800.00
Less:	COGS	($ 504500 - $ 50940)			$ 453,560.00
	Gross Profit				$ 302,240.00
	Selling and adm. Expenses:
	Sales commission			$ 39,600.00
	Adm. Salaries expense			$ 84,800.00
	Sales travel expense			$ 47,400.00
	Advertising ecpense			$ 56,000.00
	Depreciation Expense			$ 16,800.00
	Insurance Expense			$   3,200.00	$ 247,800.00
		Net Income			$   54,440.00