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Comprehensive Problem Sovereign Millwork Ltd produces reproductions of antique residential moldings at a plant located in Manchester England Because there are hundreds of products some of which

Comprehensive Problem

Sovereign Millwork, Ltd., produces reproductions of antique residential moldings at a plant located in Manchester, England. Because there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company’s fiscal year, inventory account balances were as follows:

 

 

Raw Materials . . . . . . . . . . . . . . . . . . . . . .

£10,000

Work in Process . . . . . . . . . . . . . . . . . . . .

£4,000

Finished Goods . . . . . . . . . . . . . . . . . . . .

£8,000

 

The company applies overhead cost to jobs on the basis of machine-hours. Its predetermined overhead rate for the fiscal year starting July 1 was based on a cost formula that estimated £99,000 of manufacturing overhead for an estimated activity level of 45,000 machine-hours. During the year, the following transactions were completed:

a.       Raw materials purchased on account, £160,000.

b.       Raw materials requisitioned for use in production, £140,000 (materials costing £120,000 were chargeable directly to jobs; the remaining materials were indirect).

c.       Costs for employee services were incurred as follows:

 

 

Direct labor . . . . . . . . . . . . . . . . . . . . . .

£90,000

Indirect labor . . . . . . . . . . . . . . . . . . . . .

£60,000

Sales commissions . . . . . . . . . . . . . . . .

£20,000

Administrative salaries . . . . . . . . . . . . .

£50,000

 

d.       Prepaid insurance expired during the year, £18,000 (£13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities).

e.       Utility costs incurred in the factory, £10,000.

f.       Advertising costs incurred, £15,000.

g.        Depreciation recorded on equipment, £25,000. (£20,000 of this amount was on equipment used in factory operations; the remaining £5,000 was on equipment used in selling and admin- istrative activities.)

h.       Manufacturing overhead cost was applied to jobs, £?. (The company recorded 50,000 machine-hours of operating time during the year.)

i.        Goods that had cost £310,000 to manufacture according to their job cost sheets were completed.

j.       Sales (all on account) to customers during the year totaled £498,000. These goods had cost

£308,000 to manufacture according to their job cost sheets.

 

Required:

1.       Prepare journal entries to record the transactions for the year.

2.       Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

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. (Do not prepare a schedule of cost of goods manu- factured; all of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)

Jun 28 2020 Read more Less More

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