Question

ALLIG231-SPRING 200 COMPREHENSIVE PROBLEM 1 the year with the following balances in its inventory accounts: Morrison Company beganti $ 15,000 • Raw Materials • Work-in-Process $ 45,000 • Finished Goods $ 85,000 Morrison applies overhead to production using direct labor hours. As of the beginning of the vear. Morrison estimated the year's total manufacturing overhead to be $140,000 and total direct labor hours to be 5,000. 3. The following transactions occurred during the year: Purchased $94,000 of raw materials on account. Used $87,000 of raw materials. The materials used were classified as: • Direct materials $69,000 • Indirect materials $18,000 Incurred and paid wages and salaries of $190,000, classified as: • Direct labor $130,000 (5,200 hours at $25 per hour) • Indirect labor $ 15,000 • Selling and administration $ 45,000 4. Incurred various costs totaling $83,000, related to: • Production (i.e. manufacturing overhead) $60,000 • Selling and Administration $23,000 Recorded total depreciation of $60,000, related to: • Manufacturing equipment $43,000 • Equipment used for selling and administration $17,000 Work in process totaling $290,000 was transferred to Finished Goods during the year. Finished goods costing $300,000 were sold during the year. REQUIRED (to receive credit, answer must be supported by clearly presented, easy to understand, computations) 1. (1 point) Compute the predetermined overhead rate Morrison will use to apply MOH to production (1 point) Compute the amount of overhead applied to production during the year. (3 points) Compute the ending balances in Raw Materials, Work-in-process, and Finished Goods (3 points) Compute Cost of Goods Manufactured for the year. (2 points) Compute the amount of over- or under-applied overhead for the year (be sure to label it as over or under applied). 6. (2 points) Assume any over-or-under-applied overhead is closed to Cost of Goods Sold prior to preparing financial statements and Sales for the year are $400,000. Compute Net Income (ignore income taxes).

Answer 1

Answer-

1. Predetermined Overhead  rate = Estimated Manufacturing Overhead / Estimated direct labor hours

= $140,000 / 5,000

= $28 Per Direct Labor Hour

2-Overhead applied to production = Direct Labor Hour × predetermined Overhead rate

   = 5,200× $28 = $145,600

3-Ending balance in raw materials :-

Beginning balance	$15,000
Add:Purchased	+$94,000
Less: Used raw materials	-$87,000
Ending balance in raw materials	$22,000

Ending balance in Work-in process

Beginning Balance	$45,000
Add: Direct raw materials used	+$69,000
Add: Direct Labor used	+$130,000
Add: Overhead applied	+$145,600
Less:-Work in process transfer to Finished goods	-$290,000
Ending balance in Work-in process	$99,600

Ending balance in Finished Goods

Beginning balance	$85,000
Add: Work in process transferred in	+$290,000
Less: Finished goods sold	-$300,000
Ending balance in finished goods	$75,000

4-Cost of Goods Manufactured Schedule :-

Direct materials consumed	$69,000
Direct Labor cost	$130,000
Prime cost	$199,000
Total manufacturing overhead applied	$145,600
Add: Work in process. beginning	45,000
Less: Work in process, ending	(99,600)
Cost of Goods Manufactured	$290,000

5-Amount of over-applied Overhead  = Applied Overhead - actual Overhead incurred

= $145,600 - 136,000 = $9,600 (over-applied)

Actual overhead incurred = Indirect material + Indirect labor + Indirect production cost + Depreciation of manufacturing equipment = $18,000 + 15,000 + 60,000 + 43,000 = $136,000

6-Income Statement

Sales	$400,000
Less: Adjusted Cost of good sold ($300,000-$9,600)	$290,400
Gross Margin	$109,600
Less: Total Selling & administrative cost ($45,000+$23,000+$17,000)	$85,000
Net Income	$24,600

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