QUESTION 3 (31 marks)

The Refresh Corporation uses a job-order costing system and applies manufacturing overhead cost to jobs using a predetermined overhead rate based on direct labour hours. At the beginning of the most recent year, the following estimates were made as a basis for computing the predetermined overhead rate for the year:

Budgeted manufacturing overhead cost for coming year: $385,000

Budgeted direct labour hours for coming year: 8,800

The beginning inventory balances were as follows:

Raw materials inventory: $ 72,000

Work-in-process inventory $ 60,000

Finished goods inventory $ 98,000

The following transactions took place during the year (all purchases and services were acquired on account):

1. Raw materials purchased: $180,000.
2. Raw materials requisitioned for use in production: $200,000 (80% direct materials and 20% indirect materials)
3. Salaries and wages incurred as follows:

Direct labour: $200,000

Indirect labour: $82,000

Selling and administrative salaries: $125,000

d) Utility costs incurred in the factory: $65,000.

5. Advertising costs incurred: $100,000.
6. Prepaid insurance expired during the year, $20,000 (90% related to factory operations, and 10% related to selling and administrative activities).
7. Depreciation recorded for the year: $180,000, of which 85% relates to factory assets and the remainder relates to selling and administrative assets.
8. Rental cost incurred on buildings: $70,000 (75% of the space is occupied by the factory, and 25% is occupied by sales and administration).
9. Miscellaneous selling and administrative costs incurred: $11,000.
10. Manufacturing overhead cost was applied to jobs as per company policy. During January, 8,000 direct labour hours were actually worked.
11. Goods that cost $720,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
12. Sales for the year (all on account): $1,200,000. The total cost to manufacture these goods according the job cost sheets was $700,000.

Required:

1. Prepare journal entries to record the information above. Key your entries by the letters a through l. (18 marks)
2. Determine the individual inventory account balances, and the total balance for inventory, on the companys balance sheet at the end of the year. ( 5 marks)
3. Is overhead over- or under-applied for the year? Prepare the journal entry to close this account to Cost of Goods Sold. ( 3 marks)
4. Prepare an income statement for the year. ( 5 marks)

I need full explanation and calculation of all the questions.