REVIEW PROBLEM: JOB-ORDER COSTING
Hogle Corporation is a manufacturer that uses job-order costing. On January 1, the beginning
of its fiscal year, the company's inventory balances were as follows:
The company applies overhead cost to jobs on the basis of machine-hours worked. For the current
year, the company's predetermined overhead rate was based on a cost formula that estimated
$450,000 of total manufacturing overhead for an estimated activity level of 75,000 machine-
hours. The following transactions were recorded for the year:
a. Raw materials were purchased on account, $410,000.
b. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and
$20,000
indirect materials).
c. The following costs were accrued for employee services: direct labor, $75,000; indirect labor, $110,000;
sales
commissions, $90,000; and administrative salaries, $200,000.
d. Sales travel costs were $17,000.
e. Utility costs in the factory were $43,000.
f. Advertising costs were $180,000.
g. Depreciation was recorded for the year, $350,000 (80% relates to factory operations, and 20% relates to
selling
and administrative activities).
h. Insurance expired during the year, $10,000 (70% relates to factory operations, and the remaining 30%
relates
to selling and administrative activities).
i. Manufacturing overhead was applied to production. Due to greater than expected demand for its
products, the
company worked 80,000 machine-hours on all jobs during the year.
j. Goods costing $900,000 to manufacture according to their job cost sheets were completed during the
year.
k. Goods were sold on account to customers during the year for a total of $1,500,000. The goods cost
$870,000
to manufacture according to their job cost sheets.
Required:
1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory
accounts).
3. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close
any
balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year.
,Solution to Review Problem I 1.
Based on the 80,000 machine-hours actually worked during the year, the company applied
$480,000 in overhead cost to production: $6 per machine-hour × 80,000 machine-hours =
$480,000. The following entry records this application of overhead cost:
lOMoARcPSD|1670110
, 3. Manufacturing overhead is overapplied for the year. The entry to close it out to Cost of Goods Sold is as
follows:
4.
lOMoARcPSD|1670110
Hogle Corporation is a manufacturer that uses job-order costing. On January 1, the beginning
of its fiscal year, the company's inventory balances were as follows:
The company applies overhead cost to jobs on the basis of machine-hours worked. For the current
year, the company's predetermined overhead rate was based on a cost formula that estimated
$450,000 of total manufacturing overhead for an estimated activity level of 75,000 machine-
hours. The following transactions were recorded for the year:
a. Raw materials were purchased on account, $410,000.
b. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and
$20,000
indirect materials).
c. The following costs were accrued for employee services: direct labor, $75,000; indirect labor, $110,000;
sales
commissions, $90,000; and administrative salaries, $200,000.
d. Sales travel costs were $17,000.
e. Utility costs in the factory were $43,000.
f. Advertising costs were $180,000.
g. Depreciation was recorded for the year, $350,000 (80% relates to factory operations, and 20% relates to
selling
and administrative activities).
h. Insurance expired during the year, $10,000 (70% relates to factory operations, and the remaining 30%
relates
to selling and administrative activities).
i. Manufacturing overhead was applied to production. Due to greater than expected demand for its
products, the
company worked 80,000 machine-hours on all jobs during the year.
j. Goods costing $900,000 to manufacture according to their job cost sheets were completed during the
year.
k. Goods were sold on account to customers during the year for a total of $1,500,000. The goods cost
$870,000
to manufacture according to their job cost sheets.
Required:
1. Prepare journal entries to record the preceding transactions.
2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory
accounts).
3. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close
any
balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year.
,Solution to Review Problem I 1.
Based on the 80,000 machine-hours actually worked during the year, the company applied
$480,000 in overhead cost to production: $6 per machine-hour × 80,000 machine-hours =
$480,000. The following entry records this application of overhead cost:
lOMoARcPSD|1670110
, 3. Manufacturing overhead is overapplied for the year. The entry to close it out to Cost of Goods Sold is as
follows:
4.
lOMoARcPSD|1670110
