The Smith Company uses a job-order cost system and applies manufacturing overhead cost to jobs on the basis of direct labour cost. At the beginning of the most recent year, the following estimates were made as a basis for computing the predetermined overhead rate for the year: . The following transactions took place during the year: (Note: all purchases and services were acquired on account):
a) Raw materials were purchased on account $150,000
b) Raw materials requisitioned for use in production:
Direct materials: $108,000
Indirect materials: $32,000
c) Advertising costs were incurred, $35,000
d) Salaries and wages incurred as follows:
Direct labour $150,000
Indirect labour $ 90,000
Selling and administrative salaries $125,000
e) Maintenance costs incurred in the factory, $45,000.
f) Insurance expired during the year, $25,000 (60% relates to the factory, the remainder is on selling and administrative items).
g) Depreciation recorded for the year, $90,000 (70% relates to factory assets and the remainder relates to selling and administrative assets).
h) Rental cost incurred on buildings, $120,000, (80% of the space is occupied by the factory, the remainder is occupied by offices).
i) Manufacturing overhead cost was applied to jobs ___?___.
j) Goods costing $450,000 were completed and moved to the warehouse.
k) Sales for the year were $750,000. The total cost of the manufacturing these items was $400,000.
Required:
1) Record journal entries for each of the items above.
2) Is manufacturing overhead overapplied or underapplied? By how much?
3) Record a journal entry to close manufacturing overhead to cost of goods sold.
4) Prepare an income statement for the year.