CMA Chapter 2 Exercise

Exercise Chapter 2

(1)        The Fine manufacturing company uses job order costing system. The company uses machine hours to apply overhead cost to jobs. At the beginning of 2012, the company estimated that 150,000 machine hours would be worked and $900,000 overhead cost would be incurred during 2012.

The balances of raw materials, work in process (WIP), and finished goods at the beginning of 2012 were as follows:

Raw materials	$	40,000
Work in process		30,000
Finished goods		60,000

The Fine manufacturing company recorded the following transactions during 2012:

a.	Raw materials purchased on account, $820,000.
b.	Raw materials were requisitioned for use in production, $760,000 ($720,000 direct materials and $40,000 indirect materials).
c.	Direct labor labor, $150,000; indirect labor, $220,000; sales commission, $180,000; and administrative salaries, $400,000.
d.	Sales travel costs were $34,000.
e.	Utility costs incurred in the factory, $86,000.
f.	Advertising expenses were $360,000.
g.	Depreciation for the year was $700,000 ($560,000 relates to factory and $140,000 relates to selling and administrative activities).
h.	Insurance expired during the year, $20,000 ($14,000 relates to factory operations and $6,000 relates to selling and administrative activities).
i.	Fine manufacturing company worked 160,000 machine hours. Manufacturing overhead was applied to production.
j.	Goods costing $1,800,000 were completed during the year.
k.	The goods costing $1,740,000 were sold to customers for $3,000,000.

Required:

Prepare journal entries, T-accounts and income statement from the above information.

Prepare a journal entry to close the balance in manufacturing overhead account (over or under applied manufacturing overhead) to cost of goods sold.

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2)         The Cambridge Company uses job order costing. At the beginning of the May, two jobs were in process:

		Job 369	Job372
	Materials	$ 2,000	$ 700
	Direct labor	1,000	300
	Applied factory overhead	1,500	450
There was no inventory of finished goods on May1. During the month, Jobs 373, 374, 375, 376, 378, and 379 were started.Materials requisitions for May totaled $13,000, direct labor cost, $10,000, and actual factory overhead, $16,000. Factory overhead is applied at a rate of 150% of direct labor cost. The only job still in process at the end of May is No. 379, with costs of $1,400 for materials and $900 for direct labor. Job 376, the only finished job on hand at the end of May, has a total cost of $2,000. Required: T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied factory overhead. General journal entries to record: a. Cost of goods manufactured b. Cost of goods sold c. Closing of over or underapplied factory overhead to cost of goods sold.

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(3)        Hogle Company is a manufacturing firm that uses job order costing system. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:

Raw materials Work in process Finished Goods

$20,000 $15,000 $30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year

Raw materials were purchased on account, $410,000.

Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials).

The following costs were incurred for employee services: direct labor, $75,000; indirect labor, $110,000; sales commission, $90,000; and administrative salaries, $20,000.

Sales travel costs were $17,000.

Utility costs in the factory were $43,000.

Advertising costs were $180,000.

Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).

Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.

Goods costing $9,00,000 to manufacture according to their job cost sheets were completed during the year.

Goods were sold on account to customers during the year at a total selling price of $1,500,000. The goods cost $870,000 to manufacture according to their job cost sheets.

Required:

Prepare journal entries to record the preceding transactions.

Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts).

Is manufacturing overhead underapplied or overapplied for the year? Prepare journal entry to close any balance in the manufacturing overhead account to cost of goods sold (COGS). Do not allocate the balance between ending inventories and cost of goods sold (COGS).

Prepare an income statement for the year.