Cost Flows; Application of Overhead Mooresville Corporation manufactures reproductions of eighteenth-century, classical-style furniture. It uses a job costing system that applies factory overhead on the basis of direct labor hours. Budgeted factory overhead for the year was $1,261,500, and management budgeted 87,000 direct labor hours. Mooresville had no Materials, Work-in-Process, or Finished Goods Inventory at the beginning of August. These transactions were recorded during August: a. Purchased 5,000 square feet of oak on account at $26 per square foot. b. Purchased 50 gallons of glue on account at $36 per gallon (indirect material). c. Requisitioned 3,500 square feet of oak and 31 gallons of glue for production. d. Incurred and paid payroll costs of $187,900. Of this amount, $46,000 were indirect labor costs; direct labor personnel earned $22 per hour. e. Paid factory utility bill, $15,230 in cash. f. August’s insurance cost for the manufacturing property and equipment was $3,500. The premium had been paid in March. g. Incurred $8,500 depreciation on manufacturing equipment for August. h. Recorded $2,400 depreciation on an administrative asset. i. Paid advertising expenses in cash, $5,500. j. Incurred and paid other factory overhead costs, $13,500. k. Incurred miscellaneous selling and administrative expenses, $13,250. l. Applied factory overhead to production on the basis of direct labor hours. m. Produced completed goods costing $146,000 during the month. n. Sales on account in August were $132,000. The Cost of Goods Sold was $112,000.
Required 1. Compute the firm’s predetermined factory overhead rate for the year. 2. Prepare journal entries to record the August events. Letter your entries from a to n. 3. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on August 31. 4. Prepare a schedule of Cost of Goods Manufactured and Cost of Goods Sold. 5. Prepare the income statement for August.