Question

Morrison Company uses a job-order costing system to assign manufacturing costs to jobs. Its balance sheet on January 1 is as follows: Morrison Company Balance Sheet January 1 Assets Cash $ 38,400 Raw materials $ 10,200 Work in process 6,900 Finished goods 30,300 47,400 Prepaid expenses 3,275 Property, plant, and equipment (net) 148,000 Total assets $ 237,075 Liabilities and Stockholders’ Equity Accounts payable $ 10,800 Retained earnings 226,275 Total liabilities and stockholders’ equity $ 237,075 During January the company completed the following transactions: Purchased raw materials on account, $76,400. Raw materials used in production, $85,600 ($66,800 was direct materials and $18,800 was indirect materials). Paid $183,400 of salaries and wages in cash ($101,800 was direct labor, $43,350 was indirect labor, and $38,250 was related to employees responsible for selling and administration). Various manufacturing overhead costs incurred (on account) to support production, $46,350. Depreciation recorded on property, plant, and equipment, $73,200 (70% related to manufacturing equipment and 30% related to assets that support selling and administration). Various selling expenses paid in cash, $28,250. Prepaid insurance expired during the month, $2,050 (80% related to production, and 20% related to selling and administration). Manufacturing overhead applied to production, $139,400. Cost of goods manufactured, $298,700. Cash sales to customers, $407,600. Cost of goods sold (unadjusted), $294,000. Cash payments to creditors, $74,400. Underapplied or overapplied overhead  $?  . Required: 1. Calculate the ending balances that would be reported on the company's balance sheet on January 31. (Hint: Be sure to calculate the underapplied or overapplied overhead and then account for its affect on the balance sheet.) 2. What is Morrison Company’s net operating income for the month of January?

Answer 1

1	Morrison Company
	Transaction analysis
	For the month ended January 31
	Transaction	Cash	Raw material	Work in Process	Finished goods	Manufacturing Overhead	Prepaid Expenses	Property, Plant & Equipment	=	Account payable	Retained Earnings
	Beginning Balance , 1 jan	$38400	$10200	$6900	$30300		$3275	$148000	=	$10800	$226275
	Raw Material Purchases		$76400						=	$76400
	Raw material used in production		($85600)	$66800		$18800			=
	Salaries and wages	($183400)		$101800		$43350			=		($38250)
	Various overhead cost					$46350			=	$46350
	Depreciation					$51240		($73200)	=		($21960)
	Various selling expenses	($28250)							=		($28250)
	Expiration of prepaid insurance					$1640	($2050)		=		($410)
	Manufacturing overhead applied			$139400		($139400)			=
	Cost of goods manufactured			($298700)	$298700				=
	Sales	$407600							=		$407600
	Cost of good sold				($294000)				=		($294000)
	Payment to creditors	($74400)							=	($74400)
	Underapplied overhead					($21980)			=
	Ending Balance, 31 dec	$159950	$1000	$16200	$35000	$0	$1225	$74800	=	$59150	$229025
2	Morrison company does not pay any type of dividend , its net operating income Is equal to the change in balance of retained earnings
	$229025 - $226275 = $$2750