Question - Durham Company uses a job-costing system. The following transaction took place last year:
a. Raw materials requisitioned for use in production, $40,000 (80% direct and 20% indirect).
b. Factory utilities cost incurred, $14,600.
c. Depreciation recorded on plant equipment, $28,000. 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...................... $40,000
Indirect Labor................... $18,000
Sales Commissions.......... $10,000
Administrative Salaries... $25,000
e. Insurance costs incurred, $3,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
f. Miscellaneous selling and administrative expenses incurred, $18,000.
g. Manufacturing overhead was applied to production. The company applies overhead on the basis of 150% of direct labor costs.
h. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
i. Goods that had cost $120,000 to manufacture according to their job cost sheets were sold for $200,000.
Required:
1. Determine the under applied or over applied overhead for the year.
2. Prepare an income statement for the year. (Hint: No calculations are required to determine cost of goods sold before any adjustment for under applied or over applied overhead.)