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: Raw materials Work in process Finished Goods Beginning Ending Balance Balance $ 14,650 $22,650 $ 27,650 $ 9,650 $ 62,650 $77,650 • 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 33,650 machine-hours and incur $279,295 in manufacturing overhead cost. The following transactions were recorded for the year: • Raw materials were purchased, $315,650 • Raw materials were requisitioned for use in production, $307,650 ($280,350 direct and $27,300 indirect). • The following employee costs were incurred: direct labor. $377,650: indirect labor. $96,650; and administrative salaries, $172,650. Selling costs, $147,650. Factory utility costs, $10,650. • Depreciation for the year was $166,000 of which $151,000 is related to factory operations and $15,000 is related to selling, general, and administrative activities. • Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,130 machine-hours. • Sales for the year totaled $1,295,000. .

Answer 1

Answer

Calculation of Predetermined overhead rate:

Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total machine-hours

Predetermined overhead rate = $279295 / 33650

Predetermined overhead rate = $ 8.30 per machine hour

1) Calculation of cost of goods Manufactured:

Baab Corporation Cost of goods manufactured Particulars Amount ($) Amount ($) Direct materials: Raw materials inventory, beginning $14,650|- Add: purchases of raw materials $3,15,650- Total raw materials available $3,30,3001 - Less: raw materials inventory, ending $22,650- Raw materials used in production $3,07,650- Less: indirect materials $27,300 - Direct materials $2,80,350 Direct labor $3,77,650 Manufacturing overhead applied (34130 ma- $2,83,279 Total manufacturing costs $9,41,279 Add: Beginning work in process inventory $27,650 Subtotal $9,68,929 Less: Ending work in process inventory $9,650 Cost of goods manufactured $9,59,279

2) Calculation of  underapplied or overapplied overhead:

Underapplied or Overapplied overhead Particulars Amount ($) Actual manufacturing overhead cost incurred: Indirect materials $27,300 Indirect labor $96,650 Factory utilities $10,650 Factory depreciation $1,51,000 Manufacturing overhead cost incurred $2,85,600 Manufacturing overhead applied (34130 machin $2,83,279 Under-applied overhead $2,321

3) Income Statement:

Baab Corporation Income Statement Particulars Amount ($) Amount ($) Sales $12,95,000 Cost of goods sold (adjusted) $9,46,600 Gross margin $3,48,400 Less: selling and administrative expel- Administrative salaries $1,72,6501 Selling costs $1,47,650 Depreciation $15,000 $3,35,300 Net operating income $13,100

Note: Calculation of adjusted cost of goods sold

Particulars Beginning finished goods inventory Cost of goods manufactured Goods available for sale Ending finished goods inventory Unadjusted cost of goods sold Add: Underapplied overhead Adjusted cost of goods sold Amount ($) $62,650 $9,59,279 $10,21,929 $77,650 $9,44,279 $2,321 $9,46,600