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135.
136.
Ramos Corporation bases its predetermined overhead rate on the estimated labor-hours
for the upcoming year. Data for the most recently completed year appear below:
Estimates made at the
beginning of the year:
Estimated labor-hours
24,000
Estimated variable
manufacturing overhead
$6.86
per
labor-
hour
Estimated total fixed
manufacturing overhead
$394,560
Actual labor-hours for the
year
24,500
137.
7-144
138.
7-146
139.
7-148
140.
Music Master Components produces parts for concert hall sound systems. The parts are
produced to specification by their customers, who pay either a fixed price (the price does
not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee
(cost plus). For the upcoming year (year 2), Music Master expects only two clients (Client
1 and Client 2). The work done for Client 1 will all be done under fixed-price contracts
while the work done for Client 2 will all be done under cost-plus contracts.
Manufacturing overhead for year 2 is estimated to be $10 million. Other budgeted data for
year 2 include:
Client 1
Client 2
Machine Hours (thousands)
4,000
4,000
Direct Labor Costs ($000’s)
$5,000
$15,000
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
7-155
151.
Santos Company is a manufacturing firm that uses job-order costing. At the beginning of
the year, the company's inventory balances were as follows:
Raw materials
$24,000
Work-in-Process
$73,000
Finished goods
$27,000
The company applies overhead to jobs using a predetermined overhead rate based on
machine-hours. At the beginning of the year, the company estimated that it would work
45,000 machine-hours and incur $180,000 in manufacturing overhead cost. The following
transactions were recorded for the year:
a. Raw materials were purchased, $416,000.
b. Raw materials were requisitioned for use in production, $420,000 ($380,000 direct and
$40,000 indirect).
c. The following employee costs were incurred: direct labor, $414,000; indirect labor,
$60,000; and administrative salaries, $212,000.
d. Selling costs, $141,000.
e. Factory utility costs, $20,000.
f. Depreciation for the year was $81,000 of which $73,000 is related to factory operations
and $8,000 is related to selling, general, and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year
was 48,000 machine-hours.
h. The cost of goods manufactured for the year was $1,004,000.
i. Sales for the year totaled $1,416,000 and the costs on the job cost sheets of the goods
that were sold totaled $989,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods
Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a. through j.). You can
assume that all transactions with employees, customers, and suppliers were conducted in
cash.
7-158
152.
Cherry Company is a manufacturing firm that uses job-order costing. The company's
inventory balances were as follows at the beginning and end of the year:
Beginning
Balance
Ending
Balance
Raw materials
$11,000
$15,000
Work-in-
Process
$32,000
$14,000
Finished goods
$108,000
$123,000
The company applies overhead to jobs using a predetermined overhead rate based on
machine-hours. At the beginning of the year, the company estimated that it would work
17,000 machine-hours and incur $272,000 in manufacturing overhead cost. The following
transactions were recorded for the year:
• Raw materials were purchased, $416,000.
• Raw materials were requisitioned for use in production, $412,000 ($376,000 direct and
$36,000 indirect).
• The following employee costs were incurred: direct labor, $330,000; indirect labor,
$69,000; and administrative salaries, $157,000.
• Selling costs, $113,000.
• Factory utility costs, $29,000.
• Depreciation for the year was $121,000 of which $114,000 is related to factory
operations and $7,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was
15,000 machine-hours.
• Sales for the year totaled $1,282,000.
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead underapplied or overapplied? By how much?
c. Prepare an income statement for the year in good form. The company closes any
underapplied or overapplied overhead to Cost of Goods Sold.
