Question

Problem Information: Morrison 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 . . . Morrison applies overhead to production using direct labor cost. As of the beginning of the year, Morrison 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 $????? 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 Equipment used for selling and administrative purposes . $75,000 $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.

use any 15,000 as used raw material

Answer 1

1) Predetermined overhead rate for the year Estimated manufacturing overheads Direct labor cost $300,000 $600,000 50% of Direct labor cost $525,000 2) Amount of overhead applied to work in process Direct labor cost Overhead absorption rate as % of DL Cost Amount of overhead applied to work in process 50% $262,500 3) a) Ending Raw materials inventory Direct materials: Beginning raw materials Inventory Add: Purchases of Raw material Total Raw materials available Less: Indirect material used $125,000 $100,000 $225,000 $3,000 20% of $15,000 $222,000 $12,000 80% of $15,000 $210,000 Less: Direct material used in production Ending Raw materials inventory b) Ending Work in process Inventory Direct material used in production Direct labor Manufacturing overhead applied Total manufacturing costs added to production Add: Beginning Work in process Total manufacturing cost to account for Cost of goods manufactured Ending Work in process Inventory $12,000 $525,000 $262,500 $799,500 $320,000 $1,119,500 $800,000 $319,500 c) Ending Finished goods inventory Beginning Finished goods inventory Add: Cost of goods manufactured Cost of goods available for sale Cost of goods sold Ending Finished goods inventory $400,000 $800,000 $1,200,000 $1,000,000 $200,000 $3,000 4) Amount of Overheads Over or Under-applied Actual factory overheads Indirect material Indirect labor Depreciation on factory equipment Miscellaneous factory overheads Actual factory overheads $75,000 $75,000 $85,000 $238,000 Manufacturing overhead applied Over-applied manufacturing overheads $262,500 $24,500 5) Adjusted Cost of goods sold Cost of goods sold Less: Over-applied manufacturing overheads Adjusted Cost of goods sold $1,000,000 $24,500 $975,500 $1,500,000 $975,500 $524,500 1 6) Morrison Company Income Statement For the Year Ended December 31 Sales Revenue Cost of goods sold Gross Profit Less: Operating expenses Selling and administrative salaries Other selling and administrative expenses Depreciation - Selling and administrative equipment Total Selling and administrative expenses Net Income $230,000 $230,000 $45,000 $505,000 $19,500