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Item 4

Item 4 20 points

Problem 5-18 Journal Entries; T-Accounts; Cost Flows [LO4, LO5, LO7]

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the companys inventory balances were as follows:

Raw materials	$	22,000
Work in process	$	12,400
Finished goods	$	31,200

The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 37,200 machine-hours and incur $152,520 in manufacturing overhead cost. The following transactions were recorded for the year:

1. Raw materials were purchased on account: $224,000.
2. Raw materials were requisitioned for use in production: $202,000 (85% direct and 15% indirect).
3. The following costs were incurred for employee services:

Direct labour	$	169,600
Indirect labour	$	29,400
Sales commissions	$	39,600
Administrative salaries	$	84,800

4. Heat, power, and water costs were incurred in the factory: $47,400.
5. Prepaid insurance expired during the year: $16,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).
6. Advertising costs were incurred, $56,000.
7. Depreciation was recorded for the year: $67,200 (75% relates to factory operations, and 25% relates to selling and administrative activities).
8. Manufacturing overhead cost was applied to production. The company recorded 42,400 machine-hours for the year.
9. Goods that cost $511,900 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
10. Sales for the year totalled $755,800 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $504,500.

Required:

1. Prepare journal entries to record the transactions given above. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (dont forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

3-a. Is manufacturing overhead underapplied or overapplied for the year?

• Underapplied overhead

• Overapplied overhead

3-b. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (Do not round intermediate calculations and round your final answers to 2 decimal places. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. Prepare an income statement for the year. (Round intermediate calculations to nearest whole number.)