Reference no: EM132788520

Problem - ABC Company is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:

Raw materials $20,000

Work in process $15,000

Finished Goods $30,000

The company adopts a normal costing approach and applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year.

(i) Raw materials were purchased on credit, $410,000.

(ii) Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials).

(iii) The following costs were incurred for employee services: direct labor, $75,000; indirect labor, $110,000; sales commission, $90,000; and administrative salaries, $20,000.

(iv) Sales travel costs were $17,000.

(v) Utility costs in the factory were $43,000.

(vi) Advertising costs were $180,000.

(vii) Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

(viii) Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).

(ix) Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.

(x) Goods costing $900,000 to manufacture according to their job cost sheets were completed during the year.

(xi) Goods were sold on credit to customers during the year at a total selling price of $1,500,000. The goods cost $870,000 to manufacture according to their job cost sheets.

Required -

(1) Determine the company's predetermined overhead application rate for the year.

(2) Prepare journal entries for the year to record the following:-

(i) The issue of direct material to production and the direct labour incurred.

(ii) The manufacturing overhead incurred during the year.

(iii) The application of manufacturing overhead to production.

(iv) The completion of jobs.

(v) The sale and cost of sales of jobs.

(3) Calculate the manufacturing overhead underapplied or overapplied for the year.

(4) Prepare journal entry to close any balance in the manufacturing overhead account to cost of goods sold (COGS).