Question

Garcia Manufacturing uses a job order costing system and applies overhead to production on the basis of direct labour hours. In 2013, costs and production data were estimated to remain the same as 2012 with total manufacturing overhead costs estimated to be $1,050,000, direct labour costs estimated to be $35 an hour, and direct labour hours to be 20,000. On January 1, 2013, Job No. 50 was the only job in process. The production data incurred prior to January 1 on this job were as follows: direct materials - $20,000 and direct labour – 320 hours. As of January 1, 2013, Job No. 49 had been completed and was part of the finished goods inventory. The production data for this job were as follows: direct materials - $30,000 and direct labour – 600 hours. There was also a $15,000 balance in the Raw Materials Inventory account on January 1. During the month of January, Garcia Manufacturing began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold during the month for $122,000 and $158,000, respectively. The following additional costs incurred during January: • Purchased additional raw materials of $90,000 • Incurred manufacturing overhead costs as follows: indirect materials - $17,000; indirect labour - $15,000; depreciation expenses - $19,000; and electricity - $20,000. Direct materials and direct labour were assigned to jobs during January as follows:

Job No. Direct Materials Direct Labour hours

50 $10,000 140

51 $39,000 720

52 $30,000 580

b) Prepare journal entries for the following: 1) The purchase of raw materials and manufacturing overhead costs incurred 2) The assignment of direct materials, direct labour, and manufacturing overhead to production during January 3) Completion of any jobs during January 4) Sale of any jobs during January

Answer 1

Solution

Garcia Manufacturing

1. Journal entries –

Purchase of raw materials and manufacturing overhead costs incurred –

Account Titles	Debit	Credit
Raw Materials Inventory	$90,000
Accounts Payable		$90,000
(To record purchase of materials)
Manufacturing Overhead	$71,000
Raw Materials Inventory		$17,000
Factory Labor		$15,000
Accumulated Depreciation		$19,000
Accounts Payable		$20,000
(To record manufacturing overhead costs incurred)

2. Entries to record assignment of direct materials, direct labor and mfg. OH to production during January:

Account Titles	Debit	Credit
Work in Process Inventory	$79,000
Raw Materials Inventory		$79,000
(To record raw materials costs of jobs 50, 51 and 52; 10,000 + 39,000 + 30,000 = 79,000)
Work in Process Inventory	$50,400
Factory Labor		$50,400
(To assign labor costs to production; $35 x (140 + 720 + 580 DLH) = 50,400)
Work in Process Inventory	$75,600
Manufacturing overhead		$75,600
(To assign manufacturing overhead at $52.50 x (140 + 720 + 580) = $75,600)

Computation –

Predetermined overhead rate = $1,050,000/20,000 direct labor hours = $52.50

3. Entries to record completion of jobs during January –

Jobs 50 and 51 are completed

Account Titles	Debit	Credit
Finished Goods Inventory	$172,250
Work in Process Inventory		$172,250
(To record cost of completed jobs - 50 and 51; 70,250 + 102,000 = 172,250)

Computations of cost of completed jobs –

Job 50 –

Direct materials = beg $20,000 + $10,000 = $30,000

Direct labor = beg. ($35 x 320 hrs) + ($35 x 140 hrs) = $16,100

MOH at $52.50 x (320 + 140) = $24,150

Total cost = $70,250

Job 51 –

Direct materials = $39,000

Direct labor = $35 x 720 = $25,200

MOH = $52.50 x 720 = $37,800

Total cost = $102,000

4. Entry to record sale of jobs 49 and 50:

Account Titles	Debit	Credit
Accounts Receivable	$280,000
Sales		$280,000
(To record sale of jobs 49 and 50; 122,000 + 158,000 = 280,000)