Systems Design: Job-Order Costing
Hudson Company uses a job-order costing system. During the year, the following transactions
Raw materials purchased on account, $40,000.
Raw materials were requisitioned for use in production, $38,000 (85% direct and 15% indirect).
Factory utility costs incurred, $19,100.
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.
Advertising expense incurred, $48,000.
Costs for salaries and wages were incurred as follows:
Prepaid insurance expired during the year, $3,000 (80% related to factory operations, and 20%
related to selling and administrative activities).
Miscellaneous selling and administrative expenses incurred, $9,500.
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.
Goods that cost $140,000 to manufacture according to their job cost sheets were transferred to
the finished goods warehouse.
Sales for the year totaled $250,000 and were all on account. The total cost to manufacture
these goods according to their job cost sheets was $130,000.
Collections from customers during the year totaled $245,000.
Payments to suppliers on account during the year, $150,000; payments to employees for sala-
ries and wages, $84,000.
Prepare a T-account for each account in the company's trial balance and enter the opening bal-
ances shown on the prior page.
Record the transactions above directly into the T-accounts. Prepare new T-accounts as needed.
Key your entries to the letters (a) through (m) above. Find the ending balance in each account.
Is manufacturing overhead underapplied or overapplied for the year? Make an entry in the
T-accounts to close any balance in the Manufacturing Overhead account to Cost of Goods
Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufac-
tured; all of the information needed for the income statement is available in the T-accounts.)
PROBLEM 3-25 Multiple Departments; Overhead Rates; Underapplied or Overapplied Overhead
[L03, LOS, LOS]
Hobart, Evans, and Nix is a small law firm that employs 10 partners and 12 support persons. The firm
uses a job-order costing system to accumulate costs chargeable to each client, and it is organized into
two departments-the Research and Documents Department and the Litigation Department. The firm