Hudson Company uses a job-order costing system. The following transactions took

Question

Hudson Company uses a job-order costing system. The following transactions took place last year:

   a. Raw materials were requisitioned for use in production, $40,000 (80% direct and 20% indirect).
   b. Factory utility costs incurred, $14,600.
   c. Depreciation recorded on plant and equipment, $28,000. Three-fourths of the depreciation related to factory                  equipment, and the remainder related to selling and administrative equipment.
   d. Costs for salaries and wages were incurred as follows:
                   Direct labor $40,000
                   Indirect labor $18,000

                   Sales Commissions $10,000
                   Administrative salaries $ 25,000
   f. Insurance costs, $3,000 (80% relates to factory operations, and 20% relates to selling and administrative             

      activities).
   g. Miscellaneous selling and administrative expenses incurred, $18,000.
   h. Manufacturing overhead was applied to production. The company applies overhead on the basis of 150% of

       direct labor cost.
   i. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished

      goods warehouse.
   j. Goods that had cost $120,000 to manufacture according to their job cost sheets were sold for $200,000.

QUESTION 1 - Setermine the underapplied or overapplied overhead for the year.  Show your work.

QUESTION 2 - Prepare an income statement for the year. (Note: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.)

Explanation / Answer

QUESTION 1 - Determine the underapplied or overapplied overhead for the year. Show your work.

Mfg OH T-Acct

-------------------------------------------

a. 40000*20%=8000 | 40000*150%=60000

b. 14600 |

c. 28000*3/4=21000 |

d. 18000

f. 3000*80%=2400

h. 40000*150%=60000

4000 | 4000

---------------------------------------------------------

0

So Mfg OH is Underapplied by 4000

COGS T - Acct

--------------------------

120,000 |

4000 |

--------------------------

124,000

QUESTION 2 - Prepare an income statement for the year. (Note: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.)

Hudson COmpany Income stt

-------------------------------------------------

-----------------------------------------------------

Sales 200,000

COGS 124,000

-------------------------------

Gross Margin 66,000

S&A Exp :

Insurance exp (3000*20%) = 600

Admin exp 25000

Sales comm 10,000

Sales Exp 18,000

Dep Exp (28000*1/4)=7000 60,600   

--------------------------------------------------

Net Op Income 5,400

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