Instructions

Problem # 1

Sovereign Millwork, Ltd., produces reproductions of antique residential moldings 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 companys fiscal year, inventory account balances were as follows:

Raw Materials. $12,000 Work in Process 5,000 Finished Goods11,000

The company applies overhead cost to jobs on the basis of machine-hours using the same principles followed by companies in the United States and elsewhere. For the fiscal year starting July 1, it was estimate that the plant would operate 45,000 machine-hours and incur $90,000 in manufacturing overhead cost. During the year, the following transactions were completed:

1. Raw materials purchased on account, $150,000
2. Raw materials requisitioned for use in production, $140,000 (materials costing $100,000 were chargeable directly to jobs; the remaining materials were indirect).
3. Costs for employee services were incurred as follows:

Direct labor. .90,000 Indirect labor60,000

1. Prepaid insurance expired during the year, $18,000 Pounds ($14,000 of this amount related to factory operations, and the remainder related to selling and administrative activities).
2. Utility costs incurred in the factory, $10,000.

1. Depreciation recorded on equipment: $30,000 ($20,000 of this amount was on equipment used in factory operations; the remaining $10,000 were on equipment used in selling and administrative activities).
2. Manufacturing overhead cost was applied to production, $? (The Company recorded 50,000 machine-hours of operating time during the year).
3. Goods that had cost $280,000 to manufacture according to their job cost sheets were transferred into the finished goods warehouse.
4. Sales (all on account to customers during the year totaled $490,000. These goods had cost $300,000 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 the Cost of Goods Sold. Post relevant data from your journal entries to these T-Accounts (dont forget to enter the opening balances in your inventory accounts). Compute an ending balances in each account.