Raven Company uses a job-order costing system. On January 1, the beginning of the current year, the company?s inventory balances were as follows: Raw materials $17,500
Work in process $9,760
Finished goods $29,280
The company applies overhead costs to jobs based on machine-hours. For the current year, the company estimated that it would work 36,300 machine-hours and incur $159,720 in manufacturing overhead cost. The following transactions were recorded for the year:
A. Raw materials were purchased on account: $206,000.
B. Raw materials were requisitioned for use in production: $193,000 (80% direct and 20% indirect).
C. The following costs were incurred for employee services:
Direct labour $162,600
Indirect labour $27,600
Sales commissions $36,900
Administrative salaries $81,200
D. Heat, power, and water costs were incurred in the factory: $43,350.
E. Prepaid insurance expired during the year: $11,500 (85% relates to factory operations, and 15% relates to selling and administrative activities).
F. Advertising costs were incurred $51,500.
G. Depreciation was recorded for the year: $61,800 (90% relates to factory operations, and 10% relates to selling and administrative activities).
H. Manufacturing overhead cost was applied to production. The company recorded 40,600 machine-hours for the year.
I. Goods that cost $493,100 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
J. Sales for the year totaled $714,000 and were all on the account. The total cost to manufacture these goods according to their job cost sheets was $488,000.
Required:
1. Prepare journal entries to record the transactions given above.
2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Compute an ending balance in each account.
3A. Is manufacturing overhead underapplied or overapplied for the year?
3B. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account.
4. Prepare an income statement for the year