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4-37 (35 min.) General ledger relationships, under- and overallocation. (S. Sridhar, adapted) Southwick Company uses normal costing in its job-costing system. Partiallycompleted T-accounts and additional information for Southwick for 2014 are as follows: Additional information follows: a.Direct manufacturing labor wage rate was $12 per hour. b.Manufacturing overhead was allocated at $16 per direct manufacturing labor-hour. c.During the year, sales revenues were $1,050,000, and marketing and distribution costs were$125,000. Required: 1.
What was the amount of direct materials issued to production during 2014? 2.
What was the amount of manufacturing overhead allocated to jobs during 2014? 3.
What was the total cost of jobs completed during 2014? 4.What was the balance of work-in-process inventory on December 31, 2014? 5.
What was the cost of goods sold before proration of under- or overallocated overhead? 6.
What was the under- or overallocated manufacturing overhead in 2014? 7.Dispose of the under- or overallocated manufacturing overhead using the following:
8.Using each of the approaches in requirement 7, calculate Southwick’s operating income for2014. 9.
Which approach in requirement 7 do you recommend Southwick use? Explain your answerbriefly. 4-47
1.From Direct Materials Control T-account,Direct materials issued to production = $234,000 that appears as a credit.2.Direct manufacturing labor-hours=Direct manufacturing labor costsDirect manufacturing wage rate per hour=$348,000$12 per hour= 29,000 hoursManufacturing overheadallocated=Direct manufacturinglabor hoursManufacturing overhead rate=29,000 hours $16 per hour = $464,0003.From the debit entry to Finished Goods T-account, Cost of jobs completed and transferred from WIP = $925,000 4.From Work-in-Process T-account,= $44,000 + $234,000 + $348,000 + $464,000 –$925,000 4-48Work in process inventoryon 12/31/2014
= $165,0005.From the credit entry to Finished Goods Control T-account, Cost of goods sold (beforeproration) = $880,0006.Manufacturing overheadunderallocated=Debits to ManufacturingOverhead Control– Credit to Manufacturing Overhead Allocated=$514,000 – $464,000=$50,000 underallocated7.