Crimson Tide Company uses a job-order costing system. At Crimson Tide, overhead
ID: 2546709 • Letter: C
Question
Crimson Tide Company uses a job-order costing system. At Crimson Tide, overhead costs are applied to jobs on the basis of machine-hours.
For the current year, Crimson Tide estimated that its machines would work for a total of 26,000 machine-hours. Tide also estimated for the current year that it would 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:
c. Total insurance costs were $21,000 Note: Of the total insurance cost, 90% relates to factory operations, and 10% relates to selling and administrative activities.
d. In the factory only, heat, power, and water costs incurred in the factory totalled $60,000.
e. Total depreciation recorded for the year was $71,000 Note: Of the total depreciation recorded 85% relates to factory operations, and 15% relates to selling and administrative activities.
f. Advertising costs incurred was $61,000.
g. According to their job cost sheets, goods that cost $491,000 to manufacture were transferred to the finished goods warehouse.
h. Sales for the year totaled $722,000. The total cost to manufacture these goods according to their job cost sheets was $486,000.
i. The company actually used 51,000 machine-hours during the year.
Required:
1. Determine the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.).
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 predetermined overhead rate to 2 decimal places.)
Explanation / Answer
1.
Manufacturing overhead is overapplied by $16,550.
Manufacturing Overhead
(b)
60,000
244,800
(h)
(c)
29,000
(d)
60,000
(e)
18,900
(g)
60,350
16,550
Bal.
2.
CRIMSON TIDE COMPANY
Income Statement
For the Year Ended December 31
Sales................................................................
$722,000
Less cost of goods sold ($486,000 – $16,550)........
469,450
Gross margin.....................................................
252,550
Less selling and administrative expenses:
Sales commissions...........................................
$21,000
Administrative salaries......................................
36,000
Insurance.......................................................
2,100
Advertising......................................................
61,000
Depreciation....................................................
18,900
139,000
Net operating income.........................................
$ 113,550
Manufacturing Overhead
(b)
60,000
244,800
(h)
(c)
29,000
(d)
60,000
(e)
18,900
(g)
60,350
16,550
Bal.
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