Question

Carpenter Cornices, Ltd., produces a wide variety of cornice moldings for windows at a plant located in Evergreen Park, Illinois. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company’s fiscal year, inventory account balances were as follows: Raw materials $ 12,700 Work in process $ 6,700 Finished goods $ 10,400 The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated $191,400 of manufacturing overhead for an estimated activity level of 58,000 machine-hours. During the year, the following transactions were completed (Assume all purchases and services were acquired on account): a. Raw materials purchased on account, $202,000. b. Raw materials requisitioned for use in production, $164,000 (materials costing $152,500 were chargeable directly to jobs; the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labor $ 111,000 Indirect labor $ 48,300 Sales commissions $ 34,500 Administrative salaries $ 53,500 d. Prepaid insurance expired during the year, $28,000 ($17,700 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $25,500. f. Advertising costs incurred, $14,800. g. Depreciation recorded on equipment, $39,000. ($25,500 of this amount was on equipment used in factory operations; the remaining $13,500 was on equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, $?. (The company recorded 31,000 machine-hours of operating time during the year.) i. Goods that had cost $326,000 to manufacture according to their job cost sheets were completed. j. Sales (all on account) to customers during the year totaled $614,000. These goods had cost $325,000 to manufacture according to their job cost sheets.1. 1.- Prepare journal entries to record the transactions for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account. (Round your intermediate calculations to 2 decimal places.) 3-a. Is Manufacturing Overhead underapplied or overapplied for the year? (Round your intermediate calculations to 2 decimal places.) 3-b. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (Round your intermediate calculations to 2 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Prepare an income statement for the year. (Round your intermediate calculations to 2 decimal places.)

Answer 1

a Raw material Stock 202000 h Manufacturing Cost Dr. 365800 Cr. 102300 Cr. 152500 Cr. 111000 Creditors Cr Manufacturing overhead Direct Materials Direct Labour b Direct Materials Manufacturing overhead Materials Dr Raw material stock 11500 164000 Cr i Cost of Goods manufactured WIP (Bal Fig) Manufacturing Cost Dr. 326000 Dr. 39800 Cr. 365800 111000 48300 34500 53500 247300 c Direct Labour Manufacturing overhead Labour Selling and Administrative overhead Selling and Administrative overhead Bank Dr Dr Cr i Cost of Goods Sold Closing Stock of Finished Goods Cost of Goods Manufactured Opening Stock of Finished Goods Dr. 325000 Dr. 11400 Cr. 326000 Cr. 10400 d Manufacturing overhead Insurance Dr Selling and Administrative overhead Dr Cr 17700 10300 k Customer Dr. 614000 Prepaid Insurance Sales Cr. 614000 e Manufacturing overhead - Utility Costs Dr Cr 25500 Bank 14800 14800 f Selling and Administrative overhead Dr Cr Bank g Manufacturing overhead DepreciatioDr Dr Selling and Administrative overhead Provision for Depreciation 25500 13500 39000

Raw Material 11500 152500 50700 214700 To, Opening Stock To, Creditors 12700 By, Manufacturing Overhead 202000Bv, Direct Material By, Closing Stock 214700 WIP To, Opening Stock To, Manufacturing cost 6700 39800 By, Closing Stock 46500 46500 46500 Manufacturing overhead To Raw material Stock To, Bank To, Prepaid Insurance To, Bank To, Provision for Depreciation 11500 48300 17700 25500 25500 128500 By, Cost of Goods manufactured By, Underabsorption 102300 26200 128500 Cost of Goods Sold 10400 To, Cost of Goods manufactured 326000 By Closing Stock of Finished Go 336400 To, Opening Stock of FG By, Trading & P/L acct 325000 11400 336400

Income Statement Direct material Direct Labour 152500 111000 263500 102300 365800 6700 372500 46500 326000 10400 336400 11400 325000 614000 289000 Prime Cost Add: Factory Overhead Add: Opening WIP Less: Closing WIP Add: Opening stock of Finished goods Less: Closing stock of finished goods Manufacturing Cost Cost of Finished goods Cost of Goods Sold Sales Profit (Costing) Less: Administrative and Selling overhea Less: Undersorption 126600 26200 152800 136200 Accounting Profit