
Concept explainers
1.
Calculate predetermined factory
1.

Explanation of Solution
Predetermined factory overhead rate:
Cost of goods sold: Cost of goods sold is the total of all the expenses incurred by a company to sell the goods during the given period.
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Calculate predetermined factory overhead rate.
Therefore, predetermined factory overhead rate is $13.60 per direct labor hour.
2.
Prepare journal entries.
2.

Explanation of Solution
Prepare journal entries.
Date | Description | Post Ref | Debit ($) | Credit($) |
a. | Direct material inventory | 130,000 | ||
Accounts payable (1) | 130,000 | |||
(To record purchase) | ||||
b. | Material inventory | 1,025 | ||
Accounts payable (2) | 1,025 | |||
(To record purchase of glue) | ||||
c. | Work-in-process inventory | 91,000 | ||
Factory overhead | 1,116 | |||
Material inventory (3) | 91,000 | |||
Material inventory (4) | 1,116 | |||
(To record requisitioned square feet) | ||||
d. | Work-in-process inventory (5) | 141,900 | ||
Factory overhead | 46,000 | |||
Cash | 187,900 | |||
(To record incurred and paid payroll costs) | ||||
e. | Factory overhead | 15,230 | ||
Cash | 15,230 | |||
(To record payment factory utility ) | ||||
f. | Factory overhead | 3,500 | ||
Prepaid insurance | 3,500 | |||
(To record insurance cost for the manufacturing property and equipment) | ||||
g. | Factory overhead | 8,500 | ||
8,500 | ||||
(To record depreciation on manufacturing equipment) | ||||
h. | Selling & administrative expense | 2,400 | ||
Accumulated depreciation | 2,400 | |||
(To record depreciation on administrative asset) | ||||
i. | Advertising expense | 5,500 | ||
Cash | 5,500 | |||
(To record payment of advertising expenses in cash) | ||||
j. | Factory overhead | 13,500 | ||
Cash | 13,500 | |||
(To record incurred and paid other factory overhead costs) | ||||
k. | Selling & administrative expense | 13,250 | ||
Cash | 13,250 | |||
(To record miscellaneous selling & administrative expense ) | ||||
l. | Work-in-process | 93,525 | ||
Factory overhead (6) | 93,525 | |||
(To record factory overhead) | ||||
m. | Finished goods inventory | 93,525 | ||
Work-in-process inventory | 93,525 | |||
(To record cost of finished goods) | ||||
n. | 132,000 | |||
Sales revenue | 132,000 | |||
(To record sales) | ||||
n. | Cost of goods sold | 112,000 | ||
Finished goods inventory | 112,000 | |||
(To record cost of goods sold) |
Table (1)
Working Notes (1): Calculate the accounts payable.
(2): Calculate the accounts payable.
(3): Calculate the material inventory.
(4): Calculate the material inventory.
(5) Calculate the work-in-process.
(6) Calculate the factory overhead.
3.
Compute the amount of overapplied or underapplied overhead.
3.

Explanation of Solution
Calculate the actual overhead.
Calculate the overapplied overhead.
Therefore, the amount of overapplied or underapplied overhead is $5,679.
4.
Prepare a schedule of cost of goods sold cost of goods manufactured.
4.

Explanation of Solution
Prepare a schedule of cost of goods manufactured.
M Company | ||
Statement of Cost of Goods Manufactured | ||
For the Month Ended August 31. | ||
Particulars | Amount ($) | Amount ($) |
Beginning materials inventory | 0 | |
Direct materials purchases | 130,000 | |
Total direct materials available | 130,000 | |
Ending direct materials inventory | 39,000 | |
Direct materials used | 91,000 | |
Direct labor | 141,900 | |
Factory overhead applied | 93,525 | |
Total current manufacturing costs | 326,425 | |
Add: Beginning work-in-process inventory | - | |
Total manufacturing cost to account for | 326,425 | |
Less: Ending work-in-process inventory | 180,425 | |
Cost of goods manufactured | 146,000 |
Table (2)
Compute the actual overhead.
Particulars | Amount ($) |
Indirect materials used | 1,116 |
Factory utilities | 15,230 |
Factory insurance | 3,500 |
8,500 | |
Other factory overhead | 13,500 |
Indirect labor | 46,000 |
Total factory overhead | 87,846 |
Total applied overhead | 93,525 |
Overapplied overhead | 5,679 |
Table (3)
Prepare the schedule of cost of goods sold.
M Company | |
Statement of Cost of Goods Sold | |
For the Month Ended August 31. | |
Particulars | Amount ($) |
Finished goods beginning balance | 0 |
Cost of goods manufactured | 146,000 |
Total goods available for sale | 146,000 |
Finished goods ending balance | 34,000 |
Cost of goods sold | 112,000 |
Overapplied overhead | 5,679 |
Cost of goods sold | 106,321 |
Table (4)
Therefore, the schedule of cost of goods sold is $106,321.
5.
Prepare income statement.
5.

Explanation of Solution
Prepare income statement.
M Company | ||
Income Statement | ||
For the Month Ended August 31. | ||
Particulars | Amount ($) | Amount ($) |
Sales revenue | 132,000 | |
Cost of goods sold | 106,321 | |
Gross margin | 25,679 | |
Advertising expense | 5,500 | |
Selling and administrative | 15,650 | |
Total Selling and administrative | 21,150 | |
Operating income | 4,529 |
Table (5)
Therefore, the operating income is $4,529.
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