Reference no: EM131804662

Assignment

Aucton Corporation is a manufacturing company that uses activity-based costing for its external financial reports. The company's activity cost pools and associated data for the coming year appear below:

Activity Cost Pool	Actual Activity	Estimated Overhead Cost	Actual Activity
Machining	Machine-hours	$180,000	1,000 MHs
Purchase orders	Number of orders	$90,000	600 orders
Parts management	Number of part types	$60,000	300 part types
Testing	Number of tests	$150,000	250 tests
General factory	Direct labor-hours	$280,000	20,000 DLHs

At the beginning of the year, the company had inventory balances as follows:

Raw materials         $7,000
Work in process     $6,000
Finished goods       $10,000

The following transactions were recorded for the year:

a. Raw materials were purchased on account, $595,000.

b. Raw materials were withdrawn from the storeroom for use in production, $600,000 ($560,000 direct and $40,000 indirect).

c. The following costs were incurred for employee services: direct labor, $90,000; indirect labor, $300,000; sales commissions, $85,000; and administrative salaries, $245,000.

d. Sales travel costs were incurred, $38,000.

e. Various factory overhead costs were incurred, $237,000.

f. Advertising costs were incurred, $190,000.

g. Depreciation was recorded for the year, $270,000 ($210,000 related to factory operations and $60,000 related to selling and administrative activities).

h. Manufacturing overhead was applied to products. Actual activity for the year was as follows:

Activity Cost Pool	Actual Activity
Machining	1,050 MHs
Purchase orders	580 orders
Parts management	330 part types
Testing	265 tests
General factory	21,000 DLHs

i. Goods were completed and transferred to the finished goods warehouse. According to the company's activity-based costing system, these finished goods cost $1,450,000 to manufacture.

Goods were sold on account to customers during the year for a total of $2,100,000. According to the company's activity-based costing system, the goods cost $1,400,000 to manufacture.

Required:

1. Compute the predetermined overhead rate (i.e., activity rate) for each activity cost pool.

2. Prepare journal entries to record transactions (a) through (j) above:

3. Post the entries in part (2) above to T-accounts.

4. Compute the underapplied or overapplied manufacturing overhead cost. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. Post the entry to the appropriate T-accounts.

5. Prepare an income statement for the year.