Reference no: EM131800549

Problem

Hobbit Company 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:

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 33,000 machine- hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $315,000.

• Raw materials were requisitioned for use in production, $307,000 ($281,000 direct and $26,000 indirect).

• The following employee costs were incurred: direct labor, $377,000; indirect labor, $96,000; and administrative salaries, $172,000.

• Selling costs, $147,000.

• Factory utility costs, $10,000.

• Depreciation for the year was $127,000 of which $120,000 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 34,000 machine-hours.

• Sales for the year totaled $1,253,000.

Required: Please complete the following in good form.

• Prepare a Schedule of Cost of Goods Manufactured.
• Was the overhead underapplied or overapplied? By how much?
• Prepare a Schedule of Cost of Goods Sold. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.
• Prepare an income statement for the year.