Hudson Company uses a job-order costing system. The following transactions took place last year:
a. Raw materials were requisitioned for use in production, $38,000 (85% direct and 15% indirect).
b. Factory utility costs incurred, $19,100.
c. Depreciation was recorded on plant and equipment, $36,000. Three-fourths of the depreciation related to factory equipment, and the remainder related to selling and administrative equipment.
d. Advertising expense incurred, $48,000.
e. Costs for salaries and wages were incurred as follows:
Direct labor .................................................. $45,000
Indirect labor ................................................ $10,000
Administrative salaries ................................. $30,000
f. Insurance costs, $3,000 (80% related to factory operations, and 20% related to selling and administrative activities).
g. Miscellaneous selling and administrative expenses incurred, $9,500.
h. Manufacturing overhead was applied to production. The company applies overhead on the basis of $8 per machine-hour; 7,500 machine-hours were recorded for the year.
i. Goods that cost $140,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
j. Sales for the year totaled $250,000. The total cost to manufacture these goods according to their job cost sheets was $130,000.
Required:
1. Determine the under applied or over applied overhead for the year.
2. Prepare an income statement for the year.