Cost Flows; Application of Overhead Mooresville Corporation manufactures reproductions of eighteenth-century, classical-style furniture. It uses a job costing system that applies factory overhead on the basis of direct labor hours. Budgeted factory overhead for the year was $1,261,500, and management budgeted 87,000 direct labor hours. Mooresville had no materials, work-in-process, or finished goods inventory at the beginning of August. These transactions were recorded during August:
a. Purchased 5,000 square feet of oak on account at $26 per square foot.
b. Purchased 50 gallons of glue on account at $36 per gallon (indirect material).
c. Requisitioned 3,500 square feet of oak and 31 gallons of glue for production.
d. Incurred and paid payroll costs of $187,900. Of this amount, $46,000 were indirect labor costs; direct labor personnel earned $22 per hour.
e. Paid factory utility bill, $15,230 in cash.
f. August’s insurance cost for the manufacturing property and equipment was $3,500. The premium had been paid in March.
g. Incurred $8,500 depreciation on manufacturing equipment for August.
h. Recorded $2,400 depreciation on an administrative asset.
i. Paid advertising expenses in cash, $5,500.
j. Incurred and paid other factory overhead costs, $13,500.
k. Incurred miscellaneous selling and administrative expenses, $13,250.
l. Applied factory overhead to production on the basis of direct labor hours.
m. Completed goods costing $146,000 manufactured during the month.
n. Sales on account in August were $132,000. The cost of goods sold was $112,000.
Required
1. Compute the firm’s predetermined factory overhead rate for the year.
2. Prepare journal entries to record the August events. Letter your entries from a to n.
3. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on August 31.
4. Prepare a schedule of cost of goods manufactured and sold.
5. Prepare the income statement for August.
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