Question

Michael Company uses job-order costing. The company has gathered the following data:

Direct materials purchased for cash                   $60,000

Direct materials requisitioned                            $50,000

Direct labor costs incurred                                  $90,000

Factory overhead costs incurred                         $60,000

Cost of goods completed                                   $180,000

Cost of goods sold                                             $170,000

Sales for cash                                                    $300,000

Factory overhead applied                                             ?

Factory overhead costs are applied at 90% of direct labor costs.

Required:

1. A) Prepare the required journal entries for the above transactions.
2. B) Prepare the journal entry to dispose of the overhead variance using the immediate write-off method.

Answer 1

Journal entries

No	Account and explanation	debit	credit
a	Direct material	60000
	Cash		60000
	(To record direct material purchase)
b	Work in process	50000
	Direct material		50000
	(To record direct material requisitioned)
c	Work in process	90000
	Wages payable		90000
	(To record direct labor)
d	Factory overhead	60000
	Account payable		60000
	(To record factory overhead)
e	Finished goods	180000
	work in process		180000
	(To record cost of goods completed)
f	Cost of goods sold	170000
	Finished goods		170000
	(To record cost of good sold)
g	Cash	300000
	Sales revenue		300000
	(To record sales)
h	Work in process (90000*90%)	81000
	Manufacturing overhead		81000
	(To record applied overhead)

b) Journal entry

Date	account and explanation	debit	credit
	Factory overhead (81000-60000)	21000
	Cost of goods sold		21000
	(To record over applied)