2 Backdrop Company is a manufacturing firm that uses joborde

2. Backdrop 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: Ending Balance S15,000 S14,000 S123,000 Beginning Balance Work in process... Finished goods... S11,000 $32,000 $108,000 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 s(376,000 direct and $36,000 indirect) The following employee costs were incurred: direct labor, S330.000: 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 S1,282,000 ro Required: A. Calculate the predetermine overhead rate B. Determine the Manufacturing overhead applied C. Make the required journal entry for Manufacturing overhead applied. D. Calculate cost of goods manufactured for the year E. Was the overhead underapplied or overapplied? By how much? Show your calculation. F. Prepare journal entry to eliminate the underapplied or overapplied to Cost of Goods Sold account using direct write-off method.

Solution

A. Calculation of predetermined overhead rate Estimated manufacturing overhead cost A 272000 Estimated number of machine hours B 17000 Predetermined overhead rate   (A / B ) C 16.00 per machine hour B. Manufacturing overhead applied Actual machine hours worked 15000 Predetermined rate per machine hour 16.00 Manufacturing overhead applied 240000 C. Journal entry for manufacturing overhead applied Account Title Debit Credit Work - in - process 240000 Manufacturing overhead 240000 D. Cost of goods manufactured during the year Direct Material 376000 Direct Labor 330000 Manufacturing Overhead applied 240000 Cost of goods manufactured 946000 E. Manufacturing overhead was underapplied by $8,000 Actual manufacturing overhead     Indirect material 36000     Indirect labor 69000     Factory utilities 29000     Depreciation - Factory 114000 Total actual manufacturing overhead 248000 Manufacturing overhead applied 240000 Manufacturing overhead underapplied 8000 F. Journal entry to eliminate the underapplied manufacturing overhead Account Title Debit Credit Cost of gooda sold 8000 Manufacturing overhead 8000