Cost Management

Aries Corporation manufactures 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 2014 was P1,235,475, and management budgeted 86,700 direct labor-hours. These transactions were recorded during August:

  1. Purchased 5,000 square feet of oak on account at P25 per square foot.
  2. Purchased 50 gallons of glue on account at P36 per gallon (indirect material).
  3. Requisitioned 3,500 square feet of oak and 30.5 gallons of glue for production.
  4. Incurred and paid payroll costs of P187,900. Of this amount, P46,000 were indirect labor costs; direct labor personnel earned P22 per hour on average.
  5. Paid factory utility bill, P15,230 in cash.
  6. August’s insurance cost for the manufacturing property and equipment was P3,500. The premium had been paid in March.
  7. Incurred P8,200 depreciation on manufacturing equipment for August.
  8. Recorded P2,400 depreciation on an administrative asset.
  9. Paid advertising expenses in cash, P5,500.
  10. Incurred and paid other factory overhead costs, P13,500.
  11. Incurred miscellaneous selling and administrative expenses, P13,250.
  12. Applied factory overhead to production on the basis of direct labor-hours.
  13. Completed goods costing P146,000 manufactured during the month.
  14. Made sales on account in August, P132,000. The cost of goods sold was P112,000.


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  1. Compute the firm’s predetermined factory overhead rate for the year.
  2. Prepare journal entries to record the August events.
  3. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on August 31, 2019.
  4. Prepare a schedule of cost of goods manufactured and sold.
  5. Prepare the income statement for August.

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