Starmart manufactures skateboards. the company has a highly automated
StarMart manufactures skateboards. The company has a highly automated production process, so it
allocates manufacturing overhead based on machine hours. StarMart expects to incur $340,000 of
manufacturing overhead costs and to use 5,000 machine hours during 2009.
At the end of 2008, StarMart reported the following inventories:
Raw Materials Inventory $30,000
Work in Process Inventory $27,000
Finished Goods Inventory $21,000
During January 2009, StarMart actually used 400 labor hours and recorded the following transactions:
a. Purchased materials on account, $41,000.
b. Used direct materials, $39,000
c. Manufacturing labor cost incurred was $40,000; 90% direct labor and 10% indirect labor.
d. Used indirect materials, $3,000
e. Incurred other manufacturing overhead cost of $15,000 (credit Accounts Payable).
f. Allocated manufacturing overhead for January 2009.
g. Cost of completed skateboards, $95,000.
h. Sold $192,000 of skateboards on account; cost of skateboards sold, $101,400 (StarMart uses a
perpetual inventory system).
i. Operating expenses incurred, excluding depreciation was $52,000 and depreciation was $7,000.Requirements (round to one decimal place as needed):
1. Compute StarMart’s predetermined manufacturing overhead rate for 2009 showing the entire
equation with numerator and denominator in good form. (5 points)
2. Create T accounts for the following accounts (a two column table can be used for T account): Raw
Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Cost of Goods Sold,
Manufacturing Overhead, Accounts Receivable, Sales, Accounts Payable and Wages Payable.
Post the inventory balances and transactions to these accounts and calculate the ending balances.
3. Record the journal entry to close the ending balance of Manufacturing Overhead. Post your entry
to the T-accounts (4 points)
4. Was manufacturing overhead over/underapplied and by how much? (5 points)
5. Prepare a Schedule of Cost of Goods Manufactured (in good form) for the month of January
6. Prepare a Schedule of Cost of Goods Sold (in good form) for the month of January (7 points)
7. Prepare an Income Statement for the month of January (in good form). The company is in the 30%
income tax bracket (10 points)