Sovereign Millwork, Ltd.,

Sovereign Millwork, Ltd.,

Sovereign Millwork, Ltd., produces reproductions of antique residential moldings at a plant located in Manchester, England. Since there are hundreds of products, some of which are made only to order, the company uses a job-order costing system. On July 1, the start of the company’s fiscal year, inventory account balances were as follows:

Raw Materials £ 10,300 Work in Process £ 4,200 Finished Goods £ 8,000 ——————————————————————————– The company applies overhead cost to jobs on the basis of machine-hours. For the fiscal year starting July 1, it was estimated that the plant would operate 45,500 machine-hours and incur £100,100 in manufacturing overhead cost. During the year, the following transactions were completed: a. Raw materials purchased on account, £159,200. b. Raw materials requisitioned for use in production, £141,000 c. Costs for employee services were incurred as follows: Direct labor £ 89,300 Indirect labor £ 60,700 Sales commissions £ 20,300 Administrative salaries £ 51,000 ——————————————————————————– d. Prepaid insurance expired during the year, £18,800 (£12,800 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, £10,900. f. Advertising costs incurred, £15,700. g. Depreciation recorded on equipment, £24,500. (£20,700 of this amount was on equipment used in factory operations; the remaining £3,800 was on equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, £ ? . (The company recorded 50,600 machine hours of operating time during the year.) i. Goods that had cost £310,100 to manufacture according to their job cost sheets were completed. j.Sales (all on account) to customers during the year totaled £499,000. These goods had cost £308,300 to manufacture according to their job cost sheets.

Requirement 1: Prepare journal entries to record the transactions for the year. (Omit the “£” sign in your response.) General Journal Debit Credit a. (Click for List) Sales commissions expense Raw materials Advertising expense Salaries expense Work in process Manufacturing overhead

(Click for List) Salaries and wages payable Raw materials Accumulated depreciation Accounts payable Prepaid insurance Manufacturing overhead b. (Click for List) Work in process Salaries expense Sales commissions expense Raw materials Advertising expense Manufacturing overhead

(Click for List) Sales commissions expense Advertising expense Salaries expense Raw materials Manufacturing overhead Work in process (Click for List) Accumulated depreciation Prepaid insurance Salaries and wages payable Raw materials Accounts payable Manufacturing overhead

c. (Click for List) Work in process Manufacturing overhead Salaries expense Advertising expense Sales commissions expense Raw materials

(Click for List) Salaries expense Manufacturing overhead Sales commissions expense Work in process Advertising expense Raw materials

(Click for List) Advertising expense Work in process Sales commissions expense Raw materials Manufacturing overhead Salaries expense

(Click for List) Advertising expense Manufacturing overhead Raw materials Salaries expense Work in process Sales commissions expense

(Click for List) Salaries and wages payable Prepaid insurance Accounts payable Accumulated depreciation Manufacturing overhead Raw materials

d. (Click for List) Advertising expense Salaries expense Work in process Manufacturing overhead Depreciation expense Insurance expense

(Click for List) Manufacturing overhead Advertising expense Work in process Salaries expense Insurance expense Depreciation expense (Click for List) Prepaid insurance Accounts payable Salaries and wages payable Raw materials Manufacturing overhead Accumulated depreciation

e. (Click for List) Work in process Manufacturing overhead Depreciation expense Insurance expense Advertising expense Salaries expense

(Click for List) Manufacturing overhead Prepaid insurance Accounts payable Raw materials Accumulated depreciation Salaries and wages payable

f. (Click for List) Manufacturing overhead Depreciation expense Work in process Advertising expense Insurance expense Salaries expense

(Click for List) Salaries and wages payable Raw materials Accumulated depreciation Prepaid insurance Accounts payable Manufacturing overhead

g. (Click for List) Depreciation expense Manufacturing overhead Advertising expense Work in process Salaries expense Insurance expense (Click for List) Advertising expense Depreciation expense Work in process Salaries expense Insurance expense Manufacturing overhead (Click for List) Prepaid insurance Accumulated depreciation Accounts payable Salaries and wages payable Manufacturing overhead Raw materials

h. (Click for List) Work in process Manufacturing overhead Insurance expense Depreciation expense Advertising expense Salaries expense

(Click for List) Manufacturing overhead Accumulated depreciation Prepaid insurance Accounts payable Raw materials Salaries and wages payable

i. (Click for List) Depreciation expense Finished goods Cost of goods sold Insurance expense Accounts receivable Work in process

(Click for List) Sales Accumulated depreciation Finished goods Work in process Raw materials Prepaid insurance

j. (Click for List) Finished goods Depreciation expense Raw materials Accounts receivable Work in process Insurance expense

(Click for List) Raw materials Sales Accumulated depreciation Work in process Manufacturing overhead Prepaid insurance

(Click for List) Work in process Finished goods Raw materials Insurance expense Cost of goods sold Depreciation expense

(Click for List) Manufacturing overhead Prepaid insurance Finished goods Accumulated depreciation Raw materials Work in process

Requirement 2:

Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account.

Requirement 3: (a) Is Manufacturing Overhead underapplied or overapplied for the year? Under applied Over applied (b) Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (Omit the “£” sign in your response.) General Journal Debit Credit

Requirement 4:

Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)

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