Reference no: EM132826044

Question - Intercity Roofing manufactures and installs custom shingles for use on damaged roofs of residential houses and apartments. The company uses a specialized manufacturing process to ensure the replacement shingles are an exact match with the existing roof. The company uses a job order costing system to apply manufacturing overhead on the basis of direct labour cost. The company estimates that during the next year, it will incur $70,000 in overhead costs and will pay $140,000 in direct labour costs.

During the year, the following transactions occurred:

a) Purchased $180,000 of direct materials on account.

b) Purchased $5,000 of supplies on account. (The supplies consisted of glue and cleaning supplies.)

c) Requisitioned $170,000 of direct materials and $4,500 of supplies for use in production.

d) Incurred employee costs:

i. Direct labour $150,000

ii. Indirect labour 40,000

iii. Administrative salaries 190,000

iv. Sales salaries 30,000

v. Sales commissions 90,000

e) Advertised on local television: $5,000

f) Rent: $12,000. 40% of the space related to sales offices, 60% was a shop used in production of roofing materials.

g) Depreciation: $25,000. 70% relates to roofing equipment, 30% relates to office equipment.

h) Insurance expired: $15,000. 90% relates to the factory, the remainder relates to insurance on the office equipment.

i) Manufacturing overhead costs were applied to production.

j) Goods costing $375,000 were completed.

k) The company had sales on account of $800,000. According to cost data, the jobs cost $350,000.

Required -

a) For items A through K above, record journal entries. Unless otherwise noted, assume all transactions were on account.

b) Was overhead overapplied or underapplied for the period? By how much?

c) Record a journal entry to close overhead to cost of goods sold.

d) Based on the information above, prepare a income statement for the company - assume a 20% tax rate.