Ravsten Company uses a job-order costing system The company applies overhead cos
ID: 2405141 • Letter: R
Question
Ravsten Company uses a job-order costing system The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 35,000 machine-hours and incur $183,750 in manufacturing overhead cost. The following transactions occurred during the year: a. Raw materials requisitioned for use in production, $309,000 (70% direct and 30% indirect). b. The following costs were incurred for employee services: Direct labor Indirect labor Sales commissions Administrative salaries $ 180,000 $ 38,000 $ 30,000 $ 45,000 c. Heat, power, and water costs incurred in the factory, $67,000. d. Insurance costs, $30,000 (80% relates to factory operations, and 20% relates to selling and administrative activities). e. Advertising costs incurred, $70,000 f Depreciation recorded for the year, $80,000 75% relates to factory operations, and 25% relates to selling and administrative acti ties h. Goods that cost $500,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. i. Sales for the year totaled $740,000. The total cost to manufacture these goods according to their job cost sheets was $495,000 n. Obode that o 0000 mandache aringtheir ocost sheets were transfered to the fnished gods warehouse. Required 1. Determine the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.)Explanation / Answer
Solution:
1.
Manufacturing Overhead Ledger
Particulars
Amount
Particulars
Amount
To Balance b/d
By Work in Process Inventory
$315,000
To Material Inventory
$92,700
To Wages Payable
$38,000
To Heat, Power, Water Expenses
$67,000
To Prepaid Insurance
$24,000
To Accumulated Depreciation
$60,000
By Balance c/d
-$33,300
$315,000
$315,000
Material inventory = $309,000 x 30% = $92,700
Prepaid expenses = $30,000 x 80% = $24,000
Accumulated depreciation = $80,000 x 75% = $60,000
Work in process inventory = $183,750/35,000 x 60,000 hours = $5.25 x 60,000 hours = $315,000
Underapplied overhead is $33,300.
2.
RAVSTEN COMPANY
Income Statement
For the Year Ended December 31
Sales................................................................
$740,000
Less cost of goods sold ($495,000 – $33,300)..........
461,700
Gross margin.....................................................
278,300
Less selling and administrative expenses:
Sales commissions...........................................
$30,000
Administrative salaries......................................
45,000
Insurance.......................................................
6,000
Advertising......................................................
70,000
Depreciation....................................................
20,000
171,000
Net operating income.........................................
$ 107,300
Manufacturing Overhead Ledger
Particulars
Amount
Particulars
Amount
To Balance b/d
By Work in Process Inventory
$315,000
To Material Inventory
$92,700
To Wages Payable
$38,000
To Heat, Power, Water Expenses
$67,000
To Prepaid Insurance
$24,000
To Accumulated Depreciation
$60,000
By Balance c/d
-$33,300
$315,000
$315,000
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