Ravsten Company uses a job-order costing system. The company applies overhead co
ID: 2418853 • 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 26,000 machine-hours and incur $124,800 in manufacturing overhead cost.
The following transactions occurred during the year:
a. Raw materials requisitioned for use in production, $300,000 (80% direct and 20% indirect).
b. The following costs were incurred for employee services: Direct labor $ 171,000 Indirect labor $ 29,000 Sales commissions $ 21,000 Administrative salaries $ 36,000 c. Heat, power, and water costs incurred in the factory, $60,000.
d. Insurance costs, $21,000 (90% relates to factory operations, and 10% relates to selling and administrative activities).
e. Advertising costs incurred, $61,000. f. Depreciation recorded for the year, $71,000 (85% relates to factory operations, and 15% relates to selling and administrative activities).
g. The company used 51,000 machine-hours during the year.
h. Goods that cost $491,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
i. Sales for the year totaled $722,000. The total cost to manufacture these goods according to their job cost sheets was $486,000.
Determine the underapplied or overapplied overhead for the year.
Prepare an income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) (Round your intermediate calculations to two decimal places.)
Required: 1.Determine the underapplied or overapplied overhead for the year.
2.Prepare an income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) (Round your intermediate calculations to two decimal places.)
Explanation / Answer
1)
Predetermined Overhead rate = Estimated manufacturing overhead cost/Estimated machine hour
Predetermined Overhead rate = 124800/26000
Predetermined Overhead rate = $ 4.80
Actual manufacturing Overhead = Indirect Raw Material + Indirect labor + Heat, power, and water costs incurred in the factory+ Factory Insurance costs + Depreciation
Actual manufacturing Overhead = 300000*20% + 29000+60000 + 21000*90% + 71000*85%
Actual manufacturing Overhead = $ 228,250
Manufacturing Overhead applied = Predetermined Overhead rate*Actual Machine hour
Manufacturing Overhead applied = 4.8*51000
Manufacturing Overhead applied = 244800
Overapplied overhead for the year = Manufacturing Overhead applied - Actual manufacturing Overhead
Overapplied overhead for the year = 244800-228250
Overapplied overhead for the year = $ 16550
2)
Selling & Administrative Expenses = Sales commissions + Administrative salaries + Insurance costs relates to selling and administrative activities + Advertising costs + Depreciation relates to selling and administrative activities
Selling & Administrative Expenses = 21000 + 36000 + 21000*10% + 61000 + 71000*15%
Selling & Administrative Expenses = 130750
Unadjusted cost of good sold = 486000
Adjusted Cost of good sold = Unadjusted cost of good sold - Overapplied overhead for the year
Adjusted Cost of good sold = 486000 - 16550
Adjusted Cost of good sold = 469450
Income Statement Sale 722000 Less : Adjusted Cost of good sold 469450 Gross Margin 252550 Selling & Administrative Expenses 130750 Net Income 121800Related Questions
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