Question

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company’s inventory balances were as follows:

 

Raw materials	$	23,000
Work in process	$	12,800
Finished goods	$	31,400

 

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 37,400 machine-hours and incur $157,080 in manufacturing overhead cost. The following transactions were recorded for the year:

 

1. Raw materials were purchased on account: $228,000.

2. Raw materials were requisitioned for use in production: $204,000 (85% direct and 15% indirect).

3. The following costs were incurred for employee services:

 

Direct labour	$	171,200
Indirect labour	$	29,800
Sales commissions	$	40,200
Administrative salaries	$	85,600

 

4. Heat, power, and water costs were incurred in the factory: $48,300.

5. Prepaid insurance expired during the year: $17,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

6. Advertising costs were incurred, $57,000.

7. Depreciation was recorded for the year: $68,400 (75% relates to factory operations, and 25% relates to selling and administrative activities).

8. Manufacturing overhead cost was applied to production. The company recorded 42,800 machine-hours for the year.

9. Goods that cost $521,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

10. Sales for the year totalled $765,100 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $513,200.

 

Required:

1. Prepare journal entries to record the transactions given above. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. 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.

3-a. Is manufacturing overhead underapplied or overapplied for the year?

3-b. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (Do not round intermediate calculations and round your final answers to 2 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. Prepare an income statement for the year. (Do not round intermediate calculations and round your final answers to nearest whole dollar amount.)