Question

Deep in the woods, Orchestrated for You (OY) has a small workshop where they build stringed instruments for sale to budding musicians. OY’s accountant has long used a normal costing system and applied manufacturing overhead on the basis of direct labor hours. The company’s budget for the current year includes the following predictions:

Budgeted total manufacturing overhead        $5,000,000

Budgeted total direct-labor hours                      $400,000

During November, the company worked to complete the following two orders (production jobs):

Job No. 334: consisting of 76 violins
Job No. 232: consisting of 110 cellos

The events of November are described as follows:

1. One thousand square feet of Maplewood was purchased on account for $6,600.
2. Four hundred pounds of wire (used to manufacture strings) was purchased on account for $6,800.
3. The following requisitions were submitted to the inventory warehouse on November 6th:
   1. Requisition 808: 480 square feet of Maplewood at $7 per square foot to be used for violins.
   2. Requisition 12: 1,500 pounds of wire at $6 per pound to be used for cellos.
   3. Requisition 324: 25 gallons of clear coat instrument wax at $10 per gallon.
4. An analysis of labor time cards revealed the following labor usage for November:
   1. Direct labor: Violins, 1,700 hours at $60 per hour
   2. Direct labor: Cellos, 1,750 hours at $40 per hour
   3. General factory cleanup totaling $4,900
   4. Factory supervisory salaries totaling $14,000
5. Depreciation of the factory building and equipment during November amounted to $11,500
6. Rent paid in cash for factory equipment used during November was $1,650
7. Heat and light costs on the factory incurred during November amounted to $2,800. The invoices for these costs were received, but the bills were not paid in November.
8. November property taxes on the factory were paid in cash, totaling $1,900.
9. The insurance cost covering factory operations for the month of November was $3,800. The insurance policy had been prepaid.
10. The cost of salaries and fringe benefits for sales and administrative personnel paid in cash during November amounted to $9,000.
11. Depreciation on sales office equipment and space amounted to $5,900.
12. l. Other selling and administrative expenses paid in cash during November amounted to $1,300.
13. Job 232 was completed on November 20.
14. Sixty percent of finished goods from job 232 was sold on account during November for $3,000 each.
15. Double-check that all overhead has been applied for the period
16. Close the overhead account at the end of the period.
17. Orchestrated for You is carrying forward a loss from prior years and therefore has an effective tax rate of 24%

The November 1 balances in selected accounts are as follows:

Cash ......................................             $35,000

AR: Accounts Receivable...... .......    $32,000

Prepaid Insurance.......................        $6,000

Raw-Material Inventory...............      $120,000

Manufacturing Supplies Inventory... $600

WIP: Work-in-Process Inventory....   $56,000

FG: Finished Goods Inventory ......    $180,000

Accumulated Depreciation on PPE... $80,000

AP: Accounts Payable .................      $16,500

Wages Payable .........................         $98,500

Required:

Record your answers on the cover page and turn in all your work related to the calculation of those numbers. Support for calculations is a requirement for full credit. To complete the assignment:

1. Prepare journal entries to record the events of November.
2. At minimum, complete the t-accounts on the cover page. You may find it useful to complete all the t-accounts related to the problem, see optional sheet. Note: in the process of (1) and (2) you will need to

• calculate the predetermined OH rate
• apply OH

3. Calculate the over-applied or under-applied overhead for November.
4. Record the journal entry to close the overhead account for November.
5. Build an income statement

Answer 1

Cash
Beg. bal.	35,000	f.	1,650
		g.	1,900
		j.	9,000
		l.	1,300
End. bal	21,150
Accounts Receivable
Beg. bal.	32,000
n. i.	198,000
End. bal.	230,000
Prepaid Insurance
Beg. bal.	6,000	i.	3,800
End. bal.	2,200
Raw Materials Inventory
Beg. bal.	120,000	c.i	3,360
a.	6,600	c.ii	9,000
b.	6,800
End. bal.	121,040
Manufacturing Supplies Inventory
Beg. bal.	600	c.iii.	250
End. bal.	350
Work in Process Inventory
Beg. bal.	56,000	m.	100,875
c.i.	3,360
c.ii.	9,000
d. i.	102,000
d.ii.	70,000
o.	43,125
End. bal.	182,610
Finished Goods Inventory
Beg. bal.	180,000	n.ii	60,525
m.	100,875
End. bal.	220,350
Manufacturing Overhead
c.iii	250	o.	43,125
d.iii	4,900
d.iv.	14,000
e.	11,500
f.	1,650
g.	2,800
h.	1,900
i.	3,800
	40,800
Accumulated Depreciation on PPE
		Beg. bal	80,000
		e.	11,500
		k.	5,900
		End. bal.	97,400
Accounts Payable
		Beg. bal.	16,500
		a.	6,600
		g.	2,800
		End. bal.	25,900
Wages Payable
		Beg. bal.	98,500
		d.i.	102,000
		d.ii.	70,000
		d.iii.	4,900
		d.iv.	14,000
		End. bal.	289,400

Transaction/ Event	General Journal	Debit	Credit
		$	$
a.	Raw materials inventory	6,600
	Accounts payable		6,600
b.	Raw materials inventory	6,800
	Accounts Payable		6,800
c.i.	Work in Process Inventory	3,360
	Raw Materials Inventory		3,360
c.ii.	Work in Process Inventory	9,000
	Raw Materials Inventory		9,000
c. iii.	Manufacturing Overhead	250
	Manufacturing Supplies Inventory		250
d. i.	Work in Process Inventory	102,000
	Wages Payable		102,000
d.ii.	Work in Process Inventory	70,000
	Wages Payable		70,000
d.iii.	Manufacturing Overhead	4,900
	Wages Payable		4,900
d.iv.	Manufacturing Overhead	14,000
	Wages Payable		14,000
e.	Manufacturing Overhead	11,500
	Accumulated Depreciation: PPE		11,500
f.	Manufacturing Overhead	1,650
	Cash		1,650
g.	Manufacturing Overhead	2,800
	Accounts Payable		2,800
h.	Manufacturing Overhead	1,900
	Cash		1,900
i.	Manufacturing Overhead	3,800
	Prepaid Insurance		3,800
j.	Selling and Administrative Salaries Expense	9,000
	Cash		9,000
k.	Depreciation Expense	5,900
	Accumulated Depreciation: PPE		5,900
l.	Other Selling and Administrative Expense	1,300
	Cash		1,300
m.	Finished Goods Inventory	100,875
	Work in Process Inventory		100,875
n.i.	Accounts Receivable	198,000
	Sales Revenue		198,000
n.ii	Cost of Goods Sold	60,525
	Finished Goods Inventory		60,525
o.	Work in Process Inventory ( 1,700 + 1,750) DLH x $ 12.50	43,125
	Manufacturing Overhead		43,125
p.	Manufacturing Overhead	2,325
	Cost of Goods Sold		2,325
q.	Income Tax Expense	29,664
	Income Tax Payable		29,664

Orchestrated for You Income Statement For the month ended November 30
Sales Revenue		$ 198,000
Adjusted Cost of Goods Sold		58,200
Gross Profit		139,800
Selling and Adinistrative Expenses
Salaries Expense	$ 9,000
Depreciation Expense	5,900
Other Expenses	1,300
Total Selling and Administrative Expenses		16,200
Income before taxes		123,600
Income Tax Expense		29,664
Net Income		$ 93,936