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6 COST FLOWS AND MANUFACTURING FIRMS 6.7 B2 Company is a manufacturing firm that uses job order costing. The inventory balances were as follows at

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6 COST FLOWS AND MANUFACTURING FIRMS 6.7 B2 Company is a manufacturing firm that uses job order costing. The inventory balances were as follows at the beginning and end of the year Ending balance R22 000 9 000 77 000 Beginning balanceE Raw materials Work in process Finished goods R14 000 27 000 62 000 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 R231 000 in manufacturing overhead cost. The follow ing transactions were recorded for the year Raw materials purchased, R315 000. Raw materials required for use in production, R307 000 (R281 000 direct and R26 000 indirect). The following employee costs were incurred: direct labour, R377 000; indirect labour, R96 000; and administrative salaries, R172 000. Selling costs, R147 000. Factory utility costs, R10 000. Depreciation for the year was R127 000 of which R120 000 is related to factory opera- tions and R7 000 is related to selling 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 totalled R1 253 000. Using the above information, do the following (a) Prepare a statement of cost of goods manufactured in good form. (b) Was the overhead under or over-applied? By how much? (c) Prepare an income statement for the year in good form. The company closes any under or over-applied overhead to Cost of Goods Sold

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