QUESTION 1

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):

Selling expenses $219,000

Purchases of raw materials $260,000

Direct labor ?

Administrative expenses $155,000

Manufacturing overhead applied to work in process $378,000

Actual manufacturing overhead cost $359,000

Inventory balances at the beginning and end of the year were as follows:

Beginning of

Year End of Year

Raw materials $53,000 $36,000

Work in process ? $23,000

Finished goods $40,000 ?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $720,000; the unadjusted cost of goods sold totaled $667,000; and the net operating income was $34,000. The company's under applied or over applied overhead is closed to Cost of Goods Sold.

Required:

Prepare schedules of cost of goods manufactured

Prepare cost of goods sold and an income statement.

(Hint:Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)

QUESTION 2

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labor-hours. Its predetermined overhead rate was based on a cost formula that estimated $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year:

a. Raw materials purchased on account, $290,000.

b. Raw materials used in production (all direct materials), $275,000.

c. Utility bills incurred on account, $77,000(90% related to factory operations, and the remainder related to selling and administrative activities).

d. Accrued salary and wage costs:

Direct labor (970 hours) $320,000

Indirect labor $108,000

Selling and administrative salaries $200,000

e. Maintenance costs incurred on account in the factory, $72,000

f. Advertising costs incurred on account, $154,000.

g. Depreciation was recorded for the year, $90,000(75% related to factory equipment, and the remainder related to selling and administrative equipment).

h. Rental cost incurred on account, $115,000(80% related to factory facilities, and the remainder related to selling and administrative facilities).

i. Manufacturing overhead cost was applied to jobs, $?.

j. Cost of goods manufactured for the year, $950,000.

k. Sales for the year (all on account) totaled $2,100,000. These goods cost $980,000according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were:

Raw Materials $48,000

Work in Process $39,000

Finished Goods $78,000

Required:

1. Prepare journal entries to record the preceding transactions.

2. Post your entries to T-accounts. (Don't forget to enter the beginning inventory balances above.)

3. Prepare a schedule of cost of goods manufactured.

4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

4B. Prepare a schedule of cost of goods sold.

5. Prepare an income statement for the year.

QUESTION 3

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materialsused in production(noton the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $120,900 of manufacturing overhead for an estimated allocation base of $93,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials $132,000

Direct labor cost $89,000

Manufacturing overhead costs:

Indirect labor $114,200

Property taxes $8,100

Depreciation of equipment $20,000

Maintenance $11,000

Insurance $8,300

Rent, building $30,000

Beginning Ending

Raw Materials $23,000 $11,000

Work in Process $49,000 $40,000

Finished Goods $72,000 $62,000

Required:

1. Compute the predetermined overhead rate for the year.

2. Compute the amount of under applied or over applied overhead for the year.

3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

4. Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or over applied overhead in your answer.

5. Assume that the $40,000 ending balance in Work in Process includes $8,400 of direct materials. Given this assumption, supply the information missing below:

QUESTION 4

Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below.

Supreme Videos, Inc.

Balance Sheet

January 1

Assets

Current assets:

Cash $76,000

Accounts receivable 115,000

Inventories:

Raw materials (film, costumes) $43,000

Videos in process 21,000

Finished videos awaiting sale 94,000 158,000

Prepaid insurance 11,600

Total current assets 360,600

Studio and equipment 756,000

Less accumulated depreciation 223,000 533,000

Total assets $893,600

Liabilities and Stockholders' Equity

Accounts payable $108,600

Capital stock $502,000

Retained earnings 283,000 785,000

Total liabilities and stockholders' equity $893,600

Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company's predetermined overhead rate for the year is based on a cost formula that estimated $200,000 in manufacturing overhead for an estimated allocation base of 4,000 camera-hours. The following transactions occurred during the year:

a. Film, costumes, and similar raw materials purchased on account, $198,000.

b. Film, costumes, and other raw materials used in production, $213,000 (80% of this material was considered direct to the videos in production, and the other 20% was considered indirect).

c. Utility costs incurredon account in the production studio, $85,000.

d. Depreciation recorded on the studio, cameras, and other equipment, $97,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration.

e. Advertising expense incurred on account, $143,000.

f. Costs for salaries and wages were incurredon account as follows:

Direct labor (actors and directors) $95,000

Indirect labor (carpenters to build sets,

costume designers, and so forth) $123,000

Administrative salaries $108,000

g. Prepaid insurance expired during the year, $8,300 (75% related to production of videos, and 25% related to marketing and administrative activities).

h. Miscellaneous marketing and administrative expenses incurred on account, $9,900.

i. Studio (manufacturing) overhead was applied to videos in production. The company used 6,800 camera-hours during the year.

j. Videos that cost $563,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.

k. Sales for the year totaled $951,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $613,000.

l. Collections from customers during the year totaled $863,000.

m. Payments to suppliers on account during the year, $513,000; payments to employees for salaries and wages, $320,000.

Required:

1. Prepare a T-account for each account on the company's balance sheet and enter the beginning balances.

2. Record the transactions directly into the T-accounts. Key your entries to the letters (a) through (m) above.

3. Is the Studio (manufacturing) Overhead account under applied or over applied for the year? By how much?

4. Prepare a schedule of cost of goods manufactured.

5. Prepare a schedule of cost of goods sold.

6. Prepare an income statement for the year.

QUESTION 5

The Polaris Company uses a job-order costing system. The following transactions occurred in October:

a. Raw materials purchased on account, $209,000.

b. Raw materials used in production, $192,000 ($153,600 direct materials and $38,400 indirect materials).

c. Accrued direct labor cost of $48,000 and indirect labor cost of $22,000.

d. Depreciation recorded on factory equipment, $104,000.

e. Other manufacturing overhead costs accrued during October, $129,000.

f. The company applies manufacturing overhead cost to production using a predetermined rate of $9 per machine-hour. A total of 76,200 machine-hours were used in October.

g. Jobs costing $514,000 according to their job cost sheets were completed during October and transferred to Finished Goods.

h. Jobs that had cost $451,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 26% above cost.

Required:

1. Prepare journal entries to record the transactions given above.

2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $37,000.