Problem: Babbel Company is a manufacturing firm that uses the job-order costing. The company's inventory balances were as follows the the beginning of the year
Beginning Balance Ending Balance
Raw material $21,000 $24,000
Work in process $40,000 $22,000
Finish goods $26,000 $41,000
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 38,000 machine-hours and incur $266,00 in manufacturing overhead cost. The following transactions were recorded for the year:
(a) Raw materials were purchased, $300,000.
(b) Raw materials were requisitioned for use in production., $297,000(281,000 direct and $16,000 indirect).
(c) The following employee costs were incurred: direct labor, $389,000; indirect labor, $62,000; and administrative salaries, $176,000.
(d) Selling costs, $160,000
(e) Factory utility costs, $19,000
(f) Depreciation for the year was $143,000 of which $137,000 is related to factory operations and $6,000 is related to selling, general, and administrative activities.
Manufacturing overhead was applied to jobs. The actual level of acitivity for the year was 34,000 machine-hours.
Sales for the year totaled $1,238,000
1. Prepared a schedule of cost of goods manufactured in good form.
2. Was overhead underapplied or overapplied? By how much?
3. Prepare an income statement for the year in good form. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.