Problem:
Baar Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows atthe beginning and end of the year:
| |
Beginning Balance
|
Ending Balance
|
|
Raw materials
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$26,000
|
$20,000
|
|
Work in process
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$71,000
|
$53,000
|
|
Finished goods
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$66,000
|
$81,000
|
The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 44,000 machine hours and incurs $176,000 in manufacturing overhead cost. The following transactions were recorded for the year:
- Raw materials were purchased, $459,000.
- Raw materials were requisitioned for use in production, $465,000 ($431,000 direct and $34,000 indirect).
- The following employee costs were incurred: direct labor, $296,000; indirect labor, $63,000; and administrative salaries, $157,000.
- Selling costs, $134,000.
- Factory utility costs, $14,000.
- Depreciation for the year was $119,000 of which $114,000 is related to factory operations and $5,000 is related to selling and administrative activities.
- Manufacturing overhead was applied to jobs. The actual level of activity for the year was 47,000 machine-hours.
- Sales for the year totaled $1,287,000
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead under- or over applied? By how much?
c. Prepare an income statement for the year in good form. The company closes any under- or over applied overhead to Cost of Goods Sold.