Durham Company uses a joborder costing system The following

Durham Company uses a job-order costing system. The following transactions took place last year s, Raw materials requisitioned for use in production. S40.000 (80% direct and 20% rdrect) b. Factory utility costs incurred, $14,600. c. Depreciation recorded on plant and equipment, $28.000. Three-fourths of the deprecistion relates to fsctory equipment, and the remainder relates to selling and administrative equipment d. Costs for salaries and wages were incurred as follows Direct labor Indirect labor Sales commissions Administrative salaries $40,000 $18,000 $10,000 $25,000 e Insurance costs incurred. $3,000 (80% relates to factory operations, and 20% relates to seling and administrative activities) f. Miscellaneous selling and administrative expenses incurred, $18,00o. g. Manufacturing overhead was applied to production. The company applies overhesd on the basis of 150% of direct labor cost. h. Goods that cost $130,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. i Goods that had cost $120.00D to manufacture according to their job cost sheets were sold for $200,000 Required: 1. Determine the underapplied or overapplied overhead for the year 2. Prepare an income statement for the year. (Hint. No calculaions are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) Durham Company Income Statement For the Year Ended December 31

Solution

1 Indirect material 8000 (40000*.2) Indirect labor 18000 Factory utility cost 14600 Depreciation plant and equipment 21000 (28000*.75) Insurance cost 2400 (3000*.8) Total manufacturing cost incurred 64000 Manufacturing cost applied 60000 (40000*150%) Total manufacturing cost incurred 64000 Manufacturing cost applied 60000 Under applied overhead cost 4000 2 Selling and admin cost Depreciation on plant and equipment 7000 (28000*1/4) Sales commission 10000 Administrative salaries 25000 Insurance expense 600 (3000*20%) Misc. admin and selling expense 18000 Total selling and admin expense 60600 Income statement Sales 200000 less Cost of goods sold 120000 Gross profit 80000 Less Admin and selling expense 60600 Net income 19400