Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company's inventory balances were as follows:
Raw materials $ 18,500
Work in process $ 9,920
Finished goods $ 29,760
The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 36,500 machine-hours and incur $159,140 in manufacturing overhead cost. The following transactions were recorded for the year:
a. Raw materials were purchased on account: $210,000.
b. Raw materials were requisitioned for use in production: $195,000 (80% direct and 20% indirect).
c. The following costs were incurred for employee services:
Direct labour $ 165,000
Indirect labour $ 28,000
Sales commissions $ 37,500
Administrative salaries $ 82,000
d. Heat, power, and water costs were incurred in the factory: $44,250.
e. Prepaid insurance expired during the year: $12,500 (85% relates to factory operations, and 15% relates to selling and administrative activities).
f. Advertising costs were incurred, $52,500.
g. Depreciation was recorded for the year: $63,000 (90% relates to factory operations, and 10% relates to selling and administrative activities).
h. Manufacturing overhead cost was applied to production. The company recorded 41,000 machine-hours for the year.
i. Goods that cost $498,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
j. Sales for the year totalled $723,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $496,000.
Required:
1. Prepare journal entries to record the transactions given above. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don't forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.
3-a. Is manufacturing overhead underapplied or overapplied for the year?
Overapplied overhead
Underapplied overhead
3-b. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
4. Prepare an income statement for the year.