Company is a manufacturer that uses job-order costing. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:
Raw Materials----------------------------------------------------------------------------------$20,000
Work in Process--------------------------------------------------------------------------------$15,000
Finished Goods---------------------------------------------------------------------------------$30,000
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The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year:
a. Raw materials were purchased on account, $ 410,000
b. Raw materials were requisitioned for use in production, $ 380,000 ($360,000 direct materials and $20,000 indirect materials).
c. The following costs were incurred for employees services: direct labor, $ 75,000; indirect labor,$110,000; sales commissions, $90,000; and administrative salaries,$200,000
d. Sales travel costs were $ 17,000
e. Utility costs in the factory were $ 43,000
f. Advertising costs were $ 180,000
g. Depreciation was recorded for the year, $ 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
h. Insurance expired during the year, $ 10,000(70% relates to factory operations, and the remaining 30% relates to selling and administrative activities).
i. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.
j. Good costing $900,000 to manufacture according to their job cost sheets were completed during the year.
k. Goods were sold on account to customers during the year for a total of $ 1,500,000. The goods cost $ 870,000 to manufacture according to their job cost sheets.
Required:
1. Prepare journal entries to record the preceding transactions.
2. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.