Question
Crimson Tide Company uses a job-order costing system. At Crimson Tide, overhead costs are applied to jobs on the basis of machine-hours. For the current
Crimson Tide Company uses a job-order costing system. At Crimson Tide, overhead costs are applied to jobs on the basis of machine-hours.
For the current year, Crimson Tide estimated that its machines would work for a total of 42,000 machine-hours. Tide also estimated for the current year that it would incur $191,100 in manufacturing overhead cost.
The following transactions occurred during the year:
a. Raw materials requisitioned for use in production, $240,000 (75% direct and 25% indirect).
b. The following costs were incurred for employee services:
Direct labor | $ | 166,000 | |
Indirect labor | $ | 24,000 | |
Sales commissions | $ | 16,000 | |
Administrative salaries | $ | 31,000 | |
|
c. Total insurance costs were $16,000 Note: Of the total insurance cost, 85% relates to factory operations, and 15% relates to selling and administrative activities.
d. In the factory only, heat, power, and water costs incurred in the factory totalled $48,000.
e. Total depreciation recorded for the year was $66,000 Note: Of the total depreciation recorded 80% relates to factory operations, and 20% relates to selling and administrative activities.
f. Advertising costs incurred was $56,000.
g. According to their job cost sheets, goods that cost $486,000 to manufacture were transferred to the finished goods warehouse.
h. Sales for the year totaled $712,000. The total cost to manufacture these goods according to their job cost sheets was $481,000.
i. The company actually used 46,000 machine-hours during the year.
Required:
1. Determine the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.).
2. Prepare an income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) (Round predetermined overhead rate to 2 decimal places.)
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