Activity-Based Costing Cost Flows and Income Statement (L02, L05)

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:

CHECK FIGURE

(4) Total overhead overapplied: $8,000 Activity Cost Pool Activity Measure Machining Machine-hours Purchase orders Number of orders Parts management Number of part types Testing Number of tests General factory Direct labor-hours Estimated Overhead Cost

$180,000

$90,000

$60,000

$150,000

$280,000 Expected Activity 1,000 MHs 600 orders 300 part types 250 tests 20,000 DLHs ejfpel At the beginning of the year, the company had inventory balances as follows:

Raw materials $7,000 Work in process $6,000 Finished goods $1 0,000 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b. Raw materials were withdrawn from the storeroom for use in production, $600,000 ($560,000 direct and $40,000 indirect).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 S3 8,000.

e. Various factory overhead costs were incurred, S237.000.

f. Advertising costs were incurred, SI 90,000.
g. Depreciation was recorded for the year, $270,000 (S2 10.000 related to factory operations and S60.000 related to selling and administrative activities).
h. Manufacturing overhead was applied to products. Actual activity for the year was as follows:
Activity Cost Pool Machining Purchase orders . .
Parts management Testing General factory .
.
Actual Activity 1,050 MHs 580 orders 330 part types 265 tests 21 ,000 DLHs JGoods 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 S2, 100,000. According to the company's activity-based costing system, the goods cost $1,400,000 to manufacture.
CHECK FIGURE (2d) Total overhead underapplied: SI 7,000 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.