Chapter 3.A, Problem 4P

PROBLEM 3A-4 Transaction Analysis LO3-5

Morrison Company uses a job-order costing system to assign manufacturing costs to jobs. Its balance sheet on January 1 is as follows:

Morrison Company Balance Sheet January 1

During January the company completed the following transactions:

1. Purchased raw materials on account $74,000.
2. Raw materials used in production, $77,000 (S67,000 was direct materials and S 10,000 was indirect materials).
3. Paid $167,000 of salaries and wages in cash ($95,000 was direct labor, $35,000 was indirect labor, and $37,000 was related to employees responsible for selling and administration).
4. Various manufacturing overhead costs incurred (on account) to support production, $33,000.
5. Depreciation recorded on property, plant, and equipment, $90,000 (70% related to manufacturing equipment and 30% related to assets that support selling and administration).
6. Various selling expenses paid in cash, $27,000.
7. Prepaid insurance expired during the month. $ 1,200 (80% related to production, and 20% related to selling and administration).
8. Manufacturing overhead applied to production, $132,000. l Cost of goods manufactured, $288,000.
9. Cash sales to customers, $395,000.
10. Cost of goods sold (unadjusted), $285,000.
11. Cash payments to creditors, $62,000.
12. Underapplied or overapplied overhead $ ? .

Required:

1. Calculate the ending balances that would be reported on the company's balance sheet on January 31. You can derive your answers using Microsoft Excel and Exhibit 3A-2 as your guide, or you can use paper, pencil, and a calculator. (Hint: Be sure to calculate the underapplied or overapplied overhead and then account for its affect on the balance sheet.)
2. What is Morrison Company's net operating income for the month of January¹