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Note that Top applies overhead cost to jobs on the basis of labour-hours worked. For the current year, the company estimated that it would work
Note that Top applies overhead cost to jobs on the basis of labour-hours worked. For the current year, the company estimated that it would work 9,000 labour-hours and incur 390,000 in manufacturing overhead cost.
The following transactions were recorded for the year:
- $550,000 worth of Raw Materials were purchased on account.
- $350,000 worth of Raw Materials were requisitioned for use in production, $300,000 relate to direct materials and $50,000 indirect materials
- The cost for payroll include: direct labour, $200,000, Indirect labour, $70,000 & Administrative $120,000
- Production building utility costs, $37,000
- Depreciation was recorded for the year, $200.000 ($75% relates to factory operations, and 25% relates to administrative activities)
- Prepaid insurance of $17,000 expired during the year (65% relates to production building operations, and the remaining 35% relates to administrative activities)
- Predetermined Overhead Rate: as noted earlier it is applied to production. Note lower than expected demand was found, the company worked 7,500 labour-hours during the year.
- Goods costing $700,000 to manufacture were completed during the year.
- $1,100,000 worth of goods were sold on account. The goods cost $590,000 to manufacture
Required:
- Prepare journal entries to record the transactions that have been listed above
- Post the entries in requirement (1.) to T-accounts (do not forget to enter the opening balances in the inventory accounts)
- Prepare the journal entry necessary to close any balance in the manufacturing overhead account to cost of goods sold.
- Prepare an income statement for the year
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