Question

New Junior Company is a manufacturing firm that uses Job-Order costing system. On January 1,
the beginning of the current year, the company’s inventory balances were as follows:

Raw materials $13’700
Work in process 44’000
Finished goods 32’400

The company applies cost to jobs on the basis of machine hours. For the current year, the
company estimated that it would work 32’500 machine hours and incur $151’000 in
manufacturing overhead costs. The following transactions were recorded for the year:
a. Raw Materials purchased on account, $213’500.
b. Raw materials requisitioned for use in production, $187’000 (70% direct and 30%
indirect).
c. The following costs were incurred for employee services:
Direct Labor $155’000
Indirect Labor 34’000
Sales commissions 29’000
Administrative salaries 76’600
d. Heat, power, and water costs incurred in the factory, $37’000.
e. Prepaid insurance expired during the year, $10’000 (80% relates to factory operations,
and 20% relates to selling and administrative activities).
f. Advertising costs incurred, $43’000.
g. Depreciation recorded for the year, $70’000 (80% relates to factory operations, and 20%
relates to selling and administrative activities).
h. Manufacturing overhead cost was applied to production. The company recorded 37’800
machine-hours for the year.
i. Goods costing $500’000 to manufacture were completed during the year.
j. Goods were sold on account to customers during the year at a total selling price of
$850’000. These goods cost $487’000 to manufacture.
Required:
1. Prepare journal entries to record the transactions given above.
2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold.
Post relevant data from your journal entries to these T-accounts (don’t forget to enter the
opening balances). Compute an ending balance in each account.
3. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal
entry to close any balance in the Manufacturing Overhead Account to Cost of Goods
Sold.
4. Prepare an income statement for the year.

Answer 1

1)	Journal Entries
	Events	Particulars			Debit	Credit
	a)	Raw Materials			$ 213,500.00
		To Accounts Payable				$ 213,500.00
	b)	WIP			$ 130,900.00
		Manu. OH			$   56,100.00
		To Raw Materials				$ 187,000.00
	c)	WIP			$ 155,000.00
		Manu. OH			$   34,000.00
		Sales Commissions			$   29,000.00
		Administrative Salaries			$   76,600.00
		To Payroll Payable				$ 294,600.00
	d)	Manu. OH			$   37,000.00
		To Utility Bills Payable				$   37,000.00
	e)	Manu. OH			$     8,000.00
		Insurance Expense			$     2,000.00
		To Prepaid Insurance				$   10,000.00
	f)	Advertising Expense			$   43,000.00
		To Accounts Payable				$   43,000.00
	g)	Manu. OH			$   56,000.00
		Depreciation Expense			$   14,000.00
		To Accumulated Depreciation				$   70,000.00
	h)	WIP			$ 175,624.62
		To Manu. OH				$ 175,624.62
		($ 151000 x 37800/32500)
	i)	Finished Goods			$ 500,000.00
		To WIP				$ 500,000.00
	j)	Accounts Receivable			$ 850,000.00
		To Sales				$ 850,000.00
		Cost of Goods sold			$ 487,000.00
		To Finished Goods				$ 487,000.00

2)	Raw Materials					Work in Process					Finished Goods
	Beg. Bal	$   13,700.00	b)	$ 187,000.00		Beg. Bal.	$   44,000.00	i)	$ 500,000.00		Beg. Bal.	$   32,400.00	j)	$ 487,000.00
	a)	$ 213,500.00	End. Bal.	$   40,200.00		b)	$ 130,900.00				i)	$ 500,000.00	End. Bal.	$   45,400.00
						c)	$ 155,000.00
						h)	$ 175,624.62	End. Bal.	$     5,524.62
	Manufacturing OH					Cost of Goods sold
	b)	$   56,100.00	h)	$ 175,624.62		j)	$ 487,000.00	End. Bal	$ 487,000.00
	c)	$   34,000.00
	d)	$   37,000.00
	e)	$     8,000.00
	g)	$   56,000.00	End. Bal	$   15,475.38

3)	Actual OH incurred			$ 191,100.00
	Applied OH			$ 175,624.62
	Underapplied OH			$   15,475.38
	Journal Entry
	Particulars			Debit	Credit
	Cost of Goods Sold			$   15,475.38
	To Manu. OH				$ 15,475.38

4)	Income Statement
	Sales			$ 850,000.00
Less:	Cost of Goods sold			$ 487,000.00
	Gross Margin			$ 363,000.00
Less:	Expenses
	Sales Commissions			$   29,000.00
	Administrative Salaries			$   76,600.00
	Insurance Expense			$     2,000.00
	Advertising Expense			$   43,000.00
	Depreciation Expense			$   14,000.00
	Net Operating Income			$ 198,400.00