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 40,000 machine-hours and incur $178,000 in manufacturing overhead cost. The following transactions occurred during the year:

  

a. Raw materials requisitioned for use in production, $194,000 (70% direct and 30% indirect).

b. The following costs were incurred for employee services:

    

Direct labor	$	164,000
Indirect labor	$	22,000
Sales commissions	$	14,000
Administrative salaries	$	29,000

c. Heat, power, and water costs incurred in the factory, $46,000.

d. Insurance costs, $14,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

e. Advertising costs incurred, $54,000.

f. Depreciation recorded for the year, $64,000 (75% relates to factory operations, and 25% relates to selling and administrative activities).

g. The company used 44,000 machine-hours during the year.

h. Goods that cost $484,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

i. Sales for the year totaled $708,000. The total cost to manufacture these goods according to their job cost sheets was $479,000.

Required:

1. Determine the underapplied or overapplied overhead for the year. (Round predetermined overhead rate to 2 decimal places.).

2. 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

Formula: