Question

Problem Information:
Jackson Company began the year with the following balances in its inventory accounts:
Raw Materials       $ 125,000
Work-in-Process   $ 320,000
Finished Goods       $ 400,000

Jackson Co. applies overhead to production using direct labor cost. As of the beginning of the year, Jackson co. estimated total manufacturing overhead for the year to be $300,000 and total direct labor cost to be $600,000.

The following transactions occurred during the year:
1.   Purchased $100,000 of raw materials on account.

2.   Used $15,832 raw materials In production (use the last 5 digits of your student ID number as the dollar value of raw materials used). Of the materials used, 80% were classified as direct and 20% as indirect.

3.   Incurred and paid wages and salaries of $600,000. The wages were classified as:
Direct labor                       $525,000
Indirect labor                   $ 75,000
Selling and administration               $ 230,000

4.   Incurred the following additional costs:
Miscellaneous manufacturing overhead costs (this amount does not include costs of indirect materials, indirect labor and depreciation)       $ 85,000
Selling and Administrative costs           $230,000

5.   Recorded total depreciation of $120,000, related to:
Factory manufacturing equipment               $75,000
Equipment used for selling and administrative purposes    $45,000

6.   Work in process totaling $800,000 was transferred to Finished Goods during the year.

7.   During the year, finished goods costing $1,000,000 were sold for $1,500,000.

REQUIRED. Round all answers to the nearest dollar.

1.   (1 point)   Compute the predetermined overhead rate Jackson Co. will use to apply MOH to
Work-in-Process.

2.   (1 point)   Compute the amount of overhead applied to Work-in-Process during the year.   

3.   (3 points)   Compute the ending balances in Raw Materials, Work-in-Process, and Finished
Goods accounts (hint: don’t forget to include beginning balances).

4.   (2 points)   Compute the amount of over- or under-applied overhead for the year (be sure
to label it as over or under applied).   

5.   (2 points)   Assuming Jackson Co. closes under or over-applied overhead to Cost of Goods
Sold, compute adjusted COGS for the period.              

6.   (2 points)   Prepare a traditional format income statement for the year (ignore income
taxes).

7.   (1 point)   Clarity of supporting computations.

Answer 1

1) Pre-determined Overhead Rate=

Estimated total manufacturing overhead/Estimated Total DL Cost

300000 / 600000 = $0.5 per $ of DLC

2) Overhead applied to WIP during the year:

Total DLC incurred * Pre-determined Overhead Rate

525000 * 0.5 = $262500

3) Ending balances:
Raw-Material a/c
DEBIT	AMOUNT $	CREDIT	AMOUNT $
OB	125000	WIP	12666	15832*0.8
pur	100000	M OH	3166	15832*0.2
		CB	209168
WIP a/c
OB	320000	FG	800000
DM	12666	CB	320166
DL	525000
M OH	262500
Finished Goods a/c
OB	400000	COGS	1000000
WIP	800000	CB	200000
4) Over/Under- applied Overhead:
Manufacturing Overhead a/c
IDM	3166	WIP	262500
IDL	75000
Misc.	85000
Dep	75000
COGS, Over-applied	24334
5) Adjusted COGS:
Adjusted COGS:
FG	1000000	M OH	24334
		Adjusted Bal.	975666
6) Income Statement:
Sales	1500000
Less:COGS	975666
Gross Profit	524334
Less:S& A exp.:
salaries	230000
Misc	230000
Dep	45000
total S & A	505000
NOI	19334