Question 4:

Intercity Roofing manufactures and installs custom shingles for use on damaged roofs of residential houses and apartments. The company uses a specialized manufacturing process to ensure the replacement shingles are an exact match with the existing roof. The company uses a job order costing system to apply manufacturing overhead on the basis of direct labour cost. The company estimates that during the next year, it will incur $70,000 in overhead costs and will pay $140,000 in direct labour costs.

During the year, the following transactions occurred:

1. Purchased $180,000 of direct materials on account.
2. Purchased $5,000 of supplies on account. (The supplies consisted of glue and cleaning supplies.)
3. Requisitioned $170,000 of direct materials and $4,500 of supplies for use in production.
4. Incurred employee costs:
   1. Direct labour $150,000
   2. Indirect labour 40,000
   3. Administrative salaries 190,000
   4. Sales salaries 30,000
   5. Sales commissions 90,000
5. Advertised on local television: $5,000
6. Rent: $12,000. 40% of the space related to sales offices, 60% was a shop used in production of roofing materials.
7. Depreciation: $25,000. 70% relates to roofing equipment, 30% relates to office equipment.
8. Insurance expired: $15,000. 90% relates to the factory, the remainder relates to insurance on the office equipment.
9. Manufacturing overhead costs were applied to production.
10. Goods costing $375,000 were completed.
11. The company had sales on account of $800,000. According to cost data, the jobs cost $350,000.

Required:

1. For items A through K above, record journal entries. Unless otherwise noted, assume all transactions were on account.
2. Was overhead overapplied or underapplied for the period? By how much?
3. Record a journal entry to close overhead to cost of goods sold.
4. Based on the information above, prepare an income statement for the company assume a 20% tax rate.