Question

Ravsten Company uses a job-order costing system.

  

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 34,000 machine-hours and incur $176,800 in manufacturing overhead cost. The following transactions occurred during the year:

  

a. Raw materials requisitioned for use in production, $308,000 (80% direct and 20% indirect).

b. The following costs were incurred for employee services:

    

Direct labor $ 179,000
Indirect labor $ 37,000
Sales commissions $ 29,000
Administrative salaries $ 44,000

c. Heat, power, and water costs incurred in the factory, $75,000.

d. Insurance costs, $29,000 (90% relates to factory operations, and 10% relates to selling and administrative activities).

e. Advertising costs incurred, $69,000.

f. Depreciation recorded for the year, $79,000 (85% relates to factory operations, and 15% relates to selling and administrative activities).

g. The company used 59,000 machine-hours during the year.

h. Goods that cost $499,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

i. Sales for the year totaled $738,000. The total cost to manufacture these goods according to their job cost sheets was $494,000.

. Prepare an income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) (Round predetermined overhead rate to 2 decimal places.)

Answer 1

Solution:

Preparing an Income Statement for the Year:

Ravsten Company Income Statement
Sales	$738,000
Less: Cost of Goods Sold ($494,000 - $39,950)	$454,050
Gross Profit	$283,950
Less: Sales and Administrative Expenses ($29,000 + $44,000 + ($29,000 * 10%) + ($79,000 * 15%) + $69,000	$156,750
Net Income	$127,200

* Calculation of the Underapplied or Overapplied Overhead is as follows:

Particulars	Amount	Amount
Manufacturing Overhead Applied [59,000 Machine Hours * ($176,800/34,000)]		$306,800
Overhead Incurred:
Indirect Materials ($308,000 * 20%)	$61,600
Indirect Labor	$37,000
Utilities	$75,000
Insurance ($29,000 * 90%)	$26,100
Depreciation ($79,000 * 85%)	$67,150
Total Overhead Included		$266,850
Overhead Overapplied		$39,950