Question

Job Costing I Monticello Company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. Monticello’s predetermined overhead application rate for 2017 was computed from the following data: Total estimated factory overhead $1,232,500 Total estimated direct labour cost $850,000 The following activities took place in the work in process inventory during June: WIP Inventory A/C June 1 Bal. 25,625 Direct Materials Used 127,400 Other transactions incurred:  Indirect material issued to production was $19,000  Total manufacturing labour incurred in June was $172,500, 80% of this amount represented direct labour.  Other manufacturing overhead costs incurred for June amounted to $170,375.  Two jobs were completed with total costs of $160,000 & $105,000 respectively. They were sold on account at a mark-up of 75% on cost. Required: i) Compute Monticello’s predetermined manufacturing overhead rate for 2017. ii) State the journal entries necessary to record the above transactions in the general journal: a) For direct materials used in June b) For indirect material issued to production in June c) For total manufacturing labour incurred in June d) To assign manufacturing labour to the appropriate accounts e) For other manufacturing overhead incurred f) For manufacturing overhead applied for June g) To move the completed jobs into finished goods inventory h) To sell the two completed jobs on account iii) Calculate the manufacturing overhead variance for Monticello and state the journal entries necessary to dispose of the variance. iv) What is balance on the Cost of Goods Sold account after the adjustment v) Determine the balance in work in process inventory on June 30.

Answer 1

Answer 1
Budgeted Manufacture overhead	$        1,232,500
Divided by: Budgeted direct labour cost	$            850,000
Predetermined manufacturing overhead rate Per Direct Labor cost	$                   1.45
Predetermined manufacturing overhead rate in %	145%

Answer 2
Monticello Company
Journal entries
Event	General Journal	Debit	Credit
A	Work in progress inventory	127,400
	Raw material inventory		127,400
	(To record Issue of raw material inventory into production process.)
B	Manufacture overhead	19,000
	Raw material inventory		19,000
	(To record Issue of indirect raw material inventory for Manufacturing.)
C	Wages Payable	172,500
	Cash		172,500
	(To record Issue of indirect raw material inventory for Manufacturing.)
D	Work in progress inventory (172500*80%)	138,000
	Manufacture overhead (172500*20%)	34,500
	Wages Payable		172,500
	(To record direct labor and indirect labor Consumed.)
E	Manufacture overhead	170,375
	Cash		170,375
	(To record Manufacture Overhead paid.)
F	Work in progress inventory	200,100
	Manufacture overhead		200,100
	(To record Manufacture overhead Applied to Job.) (138000*145%)
G	Finished goods inventory	265,000
	Work in progress inventory		265,000
	(To record completion of Finished goods inventory.) (160000+105000)
H	Cost of goods sold	265,000
	Finished goods inventory		265,000
	(To record Finished goods Inventory sold.)
H	Account Receivable	463,750
	Sales Revenue		463,750
	(To record sales revenue on account.) (265000+(265000*75%))
I(Answer 3)	Cost of goods sold	23,775
	Manufacture overhead		23,775
	(To record under applied of manufacture overhead.)

Answer 3
Actual Manufacture overhead incurred (19000+34500+170375)	$            223,875
Less: Manufacture overhead Applied	$            200,100
Under (Over) applied of overhead	$              23,775
Under applied of overhead or Unfavorable Manufacturing overhead variance	$              23,775

Answer 4
Cost of goods sold
Date	Debit	credit	Balance
Beg Bal
H	265,000		265000
I	23,775		288775
			288775
End Bal	288775
Cost of Goods Sold account after the adjustment			$     288,775

Answer 5
Work in progress inventory
Date	Debit	credit	Balance
Beg Bal			25,625
A	127,400		153,025
D	138,000		291,025
F	200,100		491,125
G		265,000	226,125
End Bal	226,125
Balance in work in process inventory on June 30			$     226,125