Important Problems With Solutions

1. Allenton Company is a manufacturing firm that uses job-order costing.
At the beginning
of the year, the company's inventory balances were as follows:
Raw materials: $26,000

Work in process: $47,000
Finished goods: $133,000
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
31,000 machine hours and incur $248,000 in manufacturing overhead cost. The following
transactions were recorded for the year:
a.) Raw materials purchased: $411,000.

b.) Raw materials requisitioned for use in production: $409,000 ($388,000 direct and
$21,000 indirect).
c.) The following employee costs were incurred:
Direct labour: $145,000

Indirect labour: $61,000
Administrative salaries: $190,000
d.) Selling costs: $148,000.

e.) Factory utility costs: $12,000.
f.) Depreciation for the year: $121,000, of which $114,000 is related to factory operations
and $7,000 is related to selling and administrative activities.
g.) Manufacturing overhead was applied to jobs. The actual level of activity for the year
was 29,000 machine hours.
h.) Cost of goods manufactured for the year: $783,000.
i.) Sales for the year: $1,107,000; the costs on the job cost sheets of the goods that were
sold: $768,000.
j.) The balance in the Manufacturing Overhead account was closed out to Cost of Goods
Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a. through j.). You can
assume that all transactions with employees, customers, and suppliers were conducted in
cash.
a.) Raw materials inventory 41,000
Cash 41,000
b.) Work in process 388,000
inventory
Manufacturing overhead 21,000
Raw materials inventory 409,000
c.) Work in process 145,000
inventory
Administrative salary 190,000
expense
Cash 396,000
d.) Selling expenses 148,000
Cash 148,000
e.) Manufacturing overhead 12,000
Cash 12,000
f.) Manufacturing overhead 114,000
Depreciation expense 7,000
Accumulated depreciation 121,000
g.) Work in process 232,000
h) Finished goods 783,000
Work in process 783,000
i.) Cash 1,107,000
Sales 1,107,000
Cost of goods sold 768,000
Finished goods 768,000
j.) Manufacturing overhead 24,000
2. Bakerston Company is a manufacturing firm that uses job-order costing. The company's
inventory balances at the beginning and end of the year were as follows:
Balance Beginning Balance Ending Balance

Raw materials $14,000 $22,000
Work in process 27,000 9,000
Finished goods 62,000 77,000
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:
a.) Raw materials purchased: $315,000.

b.) Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000
indirect).
c.) The following employee costs were incurred:
Direct labour: $377,000

Indirect labour: $96,000
Administrative salaries: $172,000
d.) Selling costs: $147,000.

e.) Factory utility costs: $10,000.
f.) Depreciation for the year: $127,000, of which $120,000 is related to factory operations and
$7,000 is related to selling and administrative activities.
g.) Manufacturing overhead was applied to jobs. The actual level of activity for the year was
34,000 machine hours.
h.) Sales for the year: $1,253,000.
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the manufacturing overhead under- or overapplied? By how much?
c. Prepare an income statement for the year in good form. The company closes out any under- or
overapplied overhead to Cost of Goods Sold.
a.) Schedule of cost of goods manufactured
Estimated total manufacturing overhead $231,000

(a)
Estimated total machine-hours (b) 33,000
Predetermined overhead rate (a) / (b) $7.00
Actual total machine-hours (a) 34,000
Predetermined overhead rate (b) $7.00
Overhead applied (a) * (b) $238,000

Direct materials:
Raw materials inventory, beginning $14,000
Add: purchases of raw materials 315,000
Total raw materials available 329,000
Deduct: raw materials inventory, ending 22,000
Raw materials used in production 307,000
Less: indirect materials 26,000
Direct materials 281,000
Direct labour 377,000
Manufacturing overhead applied 238,000
Total manufacturing costs 896,000
Add: Beginning work in process inventory 27,000
923,000
Deduct: Ending work in process inventory 9,000
Cost of goods manufactured $914,000
b.) Under- or overapplied overhead
Actual manufacturing overhead cost

incurred:
Indirect materials $26,000
Indirect labour 96,000
Factory utilities 10,000
Factory depreciation 120,000
Manufacturing overhead cost incurred 252,000
Manufacturing overhead applied 238,000
Underapplied overhead $14,000
c.) Income Statement
Beginning finished goods $62,000

inventory
Cost of goods manufactured 914,000
Goods available for sale 976,000
Ending finished goods 77,000
inventory
Unadjusted cost of goods 899,000
sold
Add: underapplied overhead 14,000
Adjusted cost of goods sold $913,000

Sales $1,253,000
(adjusted)
Gross margin 340,000
Less selling and
administrative expenses:
Administrative salaries $172,000
Selling costs 147,000
Depreciation 7,000 326,000
Net income $14,000

Important Problems With Solutions

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1. Allenton Company is a manufacturing firm that uses job-order costing.

Raw materials: $26,000

a.) Raw materials purchased: $411,000.

Direct labour: $145,000

d.) Selling costs: $148,000.

Balance Beginning Balance Ending Balance

a.) Raw materials purchased: $315,000.

Direct labour: $377,000

d.) Selling costs: $147,000.

Estimated total manufacturing overhead $231,000

Actual manufacturing overhead cost

Beginning finished goods $62,000

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