Question

Baab Corporation is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year: Beginning Balance Ending Balance Raw materials $ 14,850 $ 22,850 Work in process $ 27,850 $ 9,850 Finished Goods $ 62,850 $ 77,850 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,850 machine-hours and incur $294,495 in manufacturing overhead cost. The following transactions were recorded for the year: Raw materials were purchased, $315,850. Raw materials were requisitioned for use in production, $307,850 ($280,150 direct and $27,700 indirect). The following employee costs were incurred: direct labor, $377,850; indirect labor, $96,850; and administrative salaries, $172,850. Selling costs, $147,850. Factory utility costs, $10,850. Depreciation for the year was $178,000 of which $171,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,170 machine-hours. Sales for the year totaled $1,315,000. Required: a. Prepare a schedule of cost of goods manufactured. b. Was the overhead underapplied or overapplied

Answer 1

Answer:

Baab Corporation

a. Schedule of cost of goods manufactured:

Beginning work in process       $ 27,850

Direct raw materials                    280,150

Direct labor                                 377,850

Manufacturing overhead           297,279

Ending work in process            ($ 9,850)

Cost of goods manufactured $973,279

b. The overhead was underapplied (by $9,121).

Explanation:

a) Data and Calculations:

                           Beginning   Ending

Raw materials      $ 14,850 $ 22,850

Work in process $ 27,850   $ 9,850

Finished Goods $ 62,850  $ 77,850

Estimated machine hours = 33,850

Manufacturing overhead cost = $294,495

Predetermined overhead rate = $294,495/33,850 = $8.70 per mh

Raw materials purchase $315,850

Raw materials used for production $307,850

Direct raw materials $280,150

Indirect raw materials $27,700

Direct labor$377,850

Indirect labor, $96,850

Administrative salaries, $172,850

Selling costs, $147,850

Factory utility costs, $10,850

Depreciation:

 Factory Depreciation $171,000

 Selling, general, and admin. $7,000

Total for the year was $178,000

Actual level of activity for the year = 34,170 machine hours

Sales for the year = $1,315,000

Manufacturing Overhead:

Indirect raw materials         $27,700

Indirect labor,                        96,850

Factory utility costs,              10,850

Factory Depreciation           171,000

Total overhead incurred $306,400

Overhead applied              297,279

Underapplied overhead       $9,121