Question

Durham Company uses a job-order costing system. The following transactions took place last year: a. Raw materials requisitioned for use in production, $56,000 (75% direct and 25% Indirect). b. Factory utility costs incurred, $16,200. c. Depreciation recorded on plant and equipment, $31,200. Three-fourths of the depreciation relates to factory equipment, and the remainder relates to selling and administrative equipment. d. Costs for salaries and wages were incurred as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ 56,00 $ 19,600 $ 11,600 $ 41,000 e. Insurance costs incurred, $6,200 (75% relates to factory operations, and 25% relates to selling and administrative activities). f. Miscellaneous selling and administrative expenses incurred, $19,600. g. Manufacturing overhead was applied to production. The company applies overhead on the basis of 130% of direct labor cost. h. Goods that cost $146,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. 1. Goods that had cost $136,000 to manufacture according to their job cost sheets were sold for $232,000. Required: 1. Determine the underapplied or overapplied overhead for the year. 2. Prepare an Income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead. The unadjusted cost of goods sold number is provided in the given data.) * Answer is not complete. Durham Company Income Statement For the Year Ended December 31 Manufacturing overhead Gross margin Selling and administrative expenses Net operating income

Answer 1

1. Determine the underapplied or overapplied overhead for the year. Overhead underapplied $5,050 2. Prepare an income statement for the year. Durham Company Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income $232,000 141,050 90,950 81,550 $9,400 Explanation: Actual overhead Indirect materials ($56,000 ~ 25%) Factory utility costs Factory depreciation (31,200 75%) Indirect labor Insurance ($6,200 * 75%) Total $14,000 16,200 23,400 19,600 4,650 $77,850

Applied overhead = Predetermined overhead rate * Actual direct labor cost = $56,000 130% = $72,800 Under-applied (over-applied) overhead Actual overhead Less: Manufacturing overhead applied Under-applied (over-applied) overhead $77,850 72,800 $5,050 Selling and administrative expenses Depreciation ($31,200 x 25%) Sales Commissions Administrative Salaries Insurance costs ($6,200 x 25%) Miscellaneous expenses Total $7,800 11,600 41,000 1,550 19,600 $81,550 $136,000 Adjusted cost of goods sold Unadjusted cost of goods sold Add: Under applied overhead Adjusted cost of goods sold 5,050 $141,050

Answer 2

Durham Company uses a job-order costing system. During the year, the following transactions took place: