USA: +1 725-224-8795 
Sign in
The Sierra Inc uses job order costing system. The company uses machine hours to apply overhead cost to jobs. At the beginning of 2016, the company estimated that 150,000 machine hours would be worked and $900,000 overhead cost would be incurred during 2016.
The balances of raw materials, work in process (WIP), and finished goods at the beginning of 2016 were as follows:
Raw materials
$
40,000
Work in process
30,000
Finished goods
60,000
The Fine manufacturing company recorded the following transactions during 2016:
a.
Raw materials purchased on account, $820,000.
b.
Raw materials were requisitioned for use in production, $760,000 ($720,000 direct materials and $40,000 indirect materials).
c.
Direct labor, $150,000; indirect labor, $220,000; sales commission, $180,000; and administrative salaries, $400,000.
d.
Sales travel costs were $34,000.
e.
Utility costs incurred in the factory, $86,000.
f.
Advertising expenses were $360,000.
g.
Depreciation for the year was $700,000 ($560,000 relates to factory and $140,000 relates to selling and administrative activities).
h.
Insurance expired during the year, $20,000 ($14,000 relates to factory operations and $6,000 relates to selling and administrative activities).
i.
Fine manufacturing company worked 160,000 machine hours. Manufacturing overhead was applied to production.
j.
Goods costing $1,800,000 were completed during the year.
k.
The goods costing $1,740,000 were sold to customers for $3,000,000.
Required:
Prepare journal entries, T-accounts and income statement (Links to an external site.)Links to an external site. from the above information.
Expert Answer
Preparation of journal entries:
| No. | Account Head | Debit | Credit |
| a. | Raw Materials | 820,000 | |
| Accounts Payable | 820,000 | ||
| b. | Work in Process | 720,000 | |
| Manufacturing Overhead | 40,000 | ||
| Raw Materials | 760,000 | ||
| c. | Work in Process | 150,000 | |
| Manufacturing Overheads | 220,000 | ||
| Sales Commission Expenses | 180,000 | ||
| Administrative Salaries Expenses | 400,000 | ||
| Salaries and Wages Payable | 950,000 | ||
| d. | Sales travel expenses | 34,000 | |
| Accounts Payable | 34,000 | ||
| e. | Manufacturing Overheads | 86,000 | |
| Accounts Payable | 86,000 | ||
| f. | Advertising Expenses | 360,000 | |
| Accounts Payable | 360,000 | ||
| g. | Manufacturing Overheads | 560,000 | |
| Depreciation Expenses | 140,000 | ||
| Accumulated Depreciation | 700,000 | ||
| h. | Manufacturing Overheads | 14,000 | |
| Insurance Expenses | 6,000 | ||
| Prepaid Insurance | 20,000 | ||
| i. | Work in Process | 960,000 | |
| Manufacturing Overhead | 960,000 | ||
| (Note 1) | |||
| j. | Finished Goods | 1,800,000 | |
| Work in Process | 1,800,000 | ||
| k. | Accounts Receivable | 3,000,000 | |
| Sales | 3,000,000 | ||
| Cost of goods sold | 1,740,000 | ||
| Finished Goods | 1,740,000 |
Note 1:
Don't use plagiarized sources. Get Your Custom Essay on
Question & Answer: The Sierra Inc uses job order costing system. The company uses machine hours to a…..
GET AN ESSAY WRITTEN FOR YOU FROM AS LOW AS $13/PAGE
Manufacturing overhead is applied to production by multiplying actual direct labor or machine hours worked during the year and predetermined overhead rate computed at the beginning of the year. It is shown as follows:
Predetermined Overhead Rate = (Estimated Manufacturing Overhead cost / Estimated total units in the allocation base)
Predetermined Overhead rate = $900,000 / 150,000 machine hours
Predetermined Overhead rate = $6 per machine hour
Manufacturing overhead applied to production = Actual machine hours * Predetermined overhead rate
Manufacturing overhead applied to production = 160,000 hours * $6 per hour
Manufacturing overhead applied to production = $960,000
T-Accounts:
| Accounts Receivable | Raw Materials | Finished Goods | |||
| (k) 3,000,000 | Bal. 40,000 | (b) 760,000 | Bal. 60,000 | (k) 1,740,000 | |
| (a) 820,000 | (j) 1,800,000 | ||||
| Work in Process | Accounts Payable | Manufacturing Overhead | |||
| Bal. 30,000 | (j) 1,800,000 | (a) 820,000 | (b) 40,000 | (i) 960,000 | |
| (b) 720,000 | (d) 34,000 | © 220,000 | |||
| © 150,000 | € 86,000 | € 86,000 | |||
| (i) 960,000 | (f) 360,000 | (g) 560,000 | |||
| (h) 14,000 | |||||
| Prepaid Insurance | Accumulated Depreciation | Salaries and Wages Payable | |||
| (h) 20,000 | (g) 700,000 | © 950,000 | |||
| Sales | Administrative Salary Expenses | Sales Commission Expense | |||
| (k) 3,000,000 | © 400,000 | © 180,000 | |||
| Advertising Expense | Depreciation Expense | Sales Travel Expense | |||
| (f) 360,000 | (g) 140,000 | (h) 34,000 | |||
| Cost of goods Sold | Insurance Expense | ||||
| (k) 1,740,000 | (d) 6,000 | ||||
Income Statement:
| Fine Manufacturing Company | ||
| Income Statement | ||
| For the Year Ended December 31, 2016 | ||
| Sales | 3,000,000 | |
| Less: Cost of goods sold* | 1,700,000 | |
| Gross Profit | 1,300,000 | |
| Less: Selling and administrative expense: | ||
| Commission Expense | 180,000 | |
| Administrative Salaries Expense | 400,000 | |
| Sales Travel Expense | 34,000 | |
| Advertising Expense | 360,000 | |
| Depreciation Expenses | 140,000 | |
| Insurance Expenses | 6,000 | 1,120,000 |
| Net Operating Income | 180,000 | |
*Cost of goods sold = $1,740,000 – $40,000 over applies manufacturing overheads
