Bakerston Company is a manufacturing firm that uses job-order costing. The company's inventory balances at the beginning and end of the year were as follows: Balance Beginning Balance Ending Balance Raw materials $14,000 $22,000 Work in process 27,000 9,000 Finished goods 62,000 77,000 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 33,000 machine hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the year: a.) Raw materials purchased: $315,000. b.) Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000 indirect). c.) The following employee costs were incurred: Direct labour: $377,000 Indirect labour: $96,000 Administrative salaries: $172,000 d.) Selling costs: $147,000. e.) Factory utility costs: $10,000. f.) Depreciation for the year: $127,000, of which $120,000 is related to factory operations and $7,000 is related to selling and administrative activities. g.) Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine hours. h.) Sales for the year: $1,253,000. Required: a. Prepare a schedule of cost of goods manufactured in good form. b. Was the manufacturing overhead under- or overapplied

a schedule of cost of goods manufactured

Direct Raw materials                                    $281,000

Direct Labor                                                  $377,000

Indirect Raw materials                                  $26,000

Indirect Labor                                                $96,000

Factory utility costs:                                       $10,000

Depreciation - factory operations               $120,000

Add Opening Work In Process                     $27,000

Less Closing Work In Process                       ($9,000)

cost of goods manufactured                        $928,000

Under Recovery = $14,000

Explanation:

a. Prepare a schedule of cost of goods manufactured.

Raw Materials Used in Manufacturing = $14,000+$315,000-$22,000

                                                               = $307,000

a schedule of cost of goods manufactured

Direct Raw materials                                    $281,000

Direct Labor                                                  $377,000

Indirect Raw materials                                  $26,000

Indirect Labor                                                $96,000

Factory utility costs:                                       $10,000

Depreciation - factory operations               $120,000

Add Opening Work In Process                     $27,000

Less Closing Work In Process                       ($9,000)

cost of goods manufactured                        $928,000

b. Was the manufacturing overhead under- or overapplied

Factory Overheads Applied = Predetermined Rate × Actual Activity

Predetermined Rate = Budgeted Overheads/ Budgeted Activity

                                  = $231,000/33,000 machine hours

                                  =$7.00 per machine hour

Factory Overheads Applied = $7.00 × 34,000 machine hours

                                              = $238,000

Actual Overheads

Indirect Raw materials                                  $26,000

Indirect Labor                                                $96,000

Factory utility costs:                                       $10,000

Depreciation - factory operations               $120,000

Total                                                              $252,000

Actual Overheads $252,000 > Factory Overheads Applied $238,000

Under Recovery = $14,000

the correct answer is b.)

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