Question

 

1. During the month of January, the following costs were incurred:

2010

Jan 8     Purchased Materials for cash, $150,000

Jan 10    Requisition for Direct Materials that were put into production, $100,000

Jan 20    Requisitioned for Indirect Materials that were put into production, $4,000.

Jan 23    Direct Labor cost incurred during the period, $60,000 when the labor rate per hour was $5.

Jan 25    Indirect labor cost incurred during the month of January is $6,000.

Jan 28    Paid factory supervisor’s salaries on account, $18,000

Jan 31    Accrued indirect factory wages, $5,000

Jan 31    Accrued Office Salaries, $7,000

Jan 31   Depreciation on Office Building, $10,000

Jan 31   Depreciation on factory equipment $6,000

The following other information items were made available:

Beginning work in process is $20,000 and the ending work in process is $5,000.

The beginning finished goods inventory is $100,000.

The company sold 80% of the cost of goods available for sale for $600,000 on account.

The company uses perpetual inventory system.

Instruction:

1. Make necessary journal entries to show the flow of the cost of goods produced and sold.
2. Open “T” accounts for relevant accounts, show the beginning balances where applicable, post all your journal entries to the appropriate accounts.

1. What is the over- or under-appied factory overhead?
2. What is the goods available for sale?
3. Make necessary entry for the disposition of immaterial over- or under-applied factory overhead.

 

2. ABC had an estimated factory overhead of $600,000 and an estimated direct labor hours of 100,000. The company applies factory overhead, using direct labor hours as the cost driver.

During the period, the company incurred $60,000 direct labor cost at a rate of $5 per hour.

The actual factory overhead incurred is $80,000.

 

Required:

1. What is the predetermined overhead rate?
2. What is the over- or under-applied factory overhead.
3. Assuming that $50,000, $100,000, and $200,000 were balances found in Cost of Goods sold, Work-in-process, and finished goods, respectively, make necessary entries for the disposal of material under- or over-applied overhead.

Answer 1

A. The Journal Entries are as follows:

Date	Particular	Debit	Credit
Jan 8	Purchased Material	$150,000
	To Cash		$150,000
Jan 10	Work-in-Process	$100,000
	To Raw Material		$100,000
Jan 20	Manufacturing Overhead	$4000
	To Raw Material		$4000
Jan 23	Work-in-Process	$75,000
	To Wages Payable		$75,000
	(Beg WIP+Direct Labor-Ending WIP)
Jan 25	Factory Overhead	$6,000
	To Factory Payroll		$6,000
Jan 28	Wages Payable	$18,000
	To Factory Supervisor		$18,000
Jan 31	Factory Overhead	$5,000
	To Accrued Factory Payroll		$5,000
Jan 31	Salaries Expense	$7,000
	To Accrued Wages Payable		$7,000
Jan 31	Depreciation on Office Building	$10,000
	Depreciation on factory equipment	$6,000
	To Accumulated Depreciation		$16,000
Jan 31	COGS Expense	$700,000
	To Purchases and Inventory		$700,000
	( $100,000+$600,000) Finished Goods+COGS

B. T-accounts are as follows:

Raw Material
Date	Debit	Amount	Date	Credit	Amount
Jan 8	Purchased	$150,000
Cash Account
			Jan 8	Paid Cash	$150,000
Work-in-Process
Jan 10	Direct Material Cost	$100,000
Wages Payable
			Jan 23	Direct Labor Cost	$75,000
Factory Overhead
			Jan 25	Factory Payroll	$6,000
Wages Payable
Jan 28	Supervisor's Salary	$18,000
Depreciation Account
Jan 31	Accumulated Depreciation	$16,000
COGS
Jan 31	Cash	$700,000

a. The factory overhead is over applied, when the budgeted overhead is less than the actual amount of overhead incurred in the factory, whereas, under applied situtaion occurs when the budgeted overhead is higher than the actual overhead amount.

b. The goods available for sale is the net amount of product which the company can sell during the particular period. It is the net quantity of product available for sale from the producer side in the specified period.

c. What is the predetermined overhead rate?

The rate used to allocate the estimated manufacturing overhead amount to the cost objects, in the given accounting period, is known as Predetermined overhead rate.