Larker Corp. implemented activity-based costing several years ago and uses it for its external financial reports. The company has four activity cost pools, which are listed below.
Activity Cost Pool Activity Rate
Machine related $24 per MH
Purchase orders $85 per order
Machine setup $175 per setup
General Factory $16 per DLH
At the beginning of the year the company had inventory balances as follows:
Raw Materials $18,000
Work in process $24,000
Finished goods $46,000
Selected transactions recorded by the company during the year are given below:
a. Raw Materials were purchases on account $854,000
b. Raw materials were requisitioned for use in production, $858,000(780,000 direct and $68,000 indirect)
c. labor costs were incurred in the factory, $385,000 ($330,000 direct labor and $55,000 indirect labor)
d. Depreciation was recorded on factory assets, $225,000
e. Miscellaneous manufacturing overhead costs were incurred, $194,000
f. Manufacturing over cost was applied to production. Actual activity during the year was as follows:
Activity cost Pool Actual activity
Machine related 3,800 MHs
Purchase orders 700 orders
Machine Setup 400 setups
General Factory 22,000 DLHs
g. Completed products were transferred to the company's finished goods warehouse. According to the company's costing system these products cost $1,690,000.
required :
1.Prepare journal entries to record transactions (a) through (g)
2. Post the entries in part (1) above to T-accounts
3. Compute the underapplied or overapplied overhead cost in the Manufacturing Overhead account.