The Healthcare Pharmaceutical uses a process cost system and applies manufacturing overhead cost to two of the

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Question:

The Healthcare Pharmaceutical uses a process cost system and applies manufacturing overhead cost to two of the departments using predetermined overhead rates. Department A is machine oriented; the estimated manufacturing overhead cost of the department is $185,000 with an estimated machine hour of 37,000. The Department B estimates $234,000 of manufacturing overhead with an estimated use of allocation base 26,000 labor hour. The following transactions took place during the year (all purchases and services were acquired on account):

a) Raw materials purchased $96,000.

b) Raw materials requisitioned for use in production $87,000 (all direct material), 2/3rd of the direct material cost incurred in department A and the rest in Department B.

c) Utility bills incurred in the factory, $17,000.

d) Costs for salaries and wages incurred as follows: Direct labor, $174,000 (75% incurred in Department A and the rest of the 25% in department Indirect labor, $70,000 Selling and administrative salaries, $124,000

e) Insurance costs incurred in the factory, $37,000. The cost of insurance for sales and administrative equipment, $16,000.

f) Advertising costs incurred, $98,000.

g) Depreciation recorded for the year, $175,000 (75% relates to factory assets and the remainder relates to selling and administrative assets).

h) Rental cost incurred on buildings, $80,000 (80% of the space is occupied by the factory, and 20% is occupied by sales and administration).

i) Miscellaneous selling and administrative costs incurred, $12,000.

j) Manufacturing overhead cost was applied to jobs. The actual activity recorded in Department A, 30,000 machine hours and in department B, 22,220 labor hour

k) Cost of goods manufactured for the year, $480,000.

l) Sales for the year (all on account) totaled $900,000. These goods cost 60% of the revenue.

Required:

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

ii. Prepare T-accounts for Raw Materials, Work in Process-Department A, Work in Process-Department B, Finished Goods, Manufacturing Overhead, and Cost of Goods Sold. Compute the ending balance in each account.

ii. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close this balance against Cost of Goods Sold.