Regal Millwork Ltd. produces reproductions of antique residential mouldings at a plant located in Manchester, England. Since there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company’s fiscal year, inventory account balances were as follows:

Raw Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £10,000

Work in Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £4,000

Finished Goods.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £8,000

The company applies overhead cost to jobs on the basis of machine-hours. For the fiscal year starting July 1, it was estimated that the plant would operate 45,000 machine-hours and incur £99,000 in manufacturing overhead cost. During the year, the following transactions were completed:

a. Raw materials were purchased on account: £160,000.

b. Raw materials were requisitioned for use in production: £140,000 (materials costing £120,000 were chargeable directly to jobs; the remaining materials were indirect).

c. Costs for employee services were incurred as follows:

Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £90,000

Indirect labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £60,000

Sales commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £20,000

Administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £50,000

d. Prepaid insurance expired during the year: £18,000 (£13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities).

e. Utility costs were incurred in the factory: £10,000.

f. Advertising costs were incurred: £15,000.

g. Depreciation was recorded on equipment: £25,000 (£20,000 of this amount was on equipment used in factory operations; the remaining £5,000 was on equipment used in selling and administrative activities).

h. Manufacturing overhead cost was applied to jobs: £ ? (the company recorded 50,000 machine-hours of operating time during the year).

i. Goods that had cost £310,000 to manufacture according to their job cost sheets were completed.

j. Sales (all on account) to customers during the year totalled £498,000. These goods cost £308,000 to manufacture according to their job cost sheets.

Required:

1. Prepare journal entries to record the transactions for the year.

2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

3. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account.

4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)