Question

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year: a. Raw materials were purchased on account, $ 410,000 b. Raw materials were requisitioned for use in production, $ 380,000 ($360,000 direct materials and $20,000 indirect materials). c. The following costs were incurred for employees services: direct labor, $ 75,000; indirect labor,$110,000; sales commissions, $90,000; and administrative salaries,$200,000 d. Sales travel costs were $ 17,000 e. Utility costs in the factory were $ 43,000 f. Advertising costs were $ 180,000 g. Depreciation was recorded for the year, $ 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities). h. Insurance expired during the year, $ 10,000(70% relates to factory operations, and the remaining 30% relates to selling and administrative activities). i. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year. j. Good costing $900,000 to manufacture according to their job cost sheets were complete  during the year. k. Goods were sold on account to customers during the year for a total of $ 1,500,000. The goods cost $ 870,000 to manufacture according to their job cost sheets. Required: 1. Prepare journal entries to record the preceding transactions. 2. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

Answer 1

No.	General Journal	Debit	Credit
a.	Raw materials	410,000
	Accounts Payable		410,000
b.	Work in process	360,000
	Manufacturing overhead	20,000
	Raw materials		380,000
c.	Work in process	75,000
	Manufacturing overhead	110,000
	Sales Commissions Expense	90,000
	Administrative salary expense	200,000
	Salaries and Wages payable		475,000
d.	Sales Travel Expense	17,000
	Accounts Payable		17,000
e.	Manufacturing overhead	43,000
	Accounts Payable		43,000
f.	Advertising Expense	180,000
	Accounts Payable		180,000
g.	Manufacturing overhead	280,000
	Depreciation Expense	70,000
	Accumulated Depreciation		350,000
h.	Manufacturing overhead	7,000
	Insurance Expense	3,000
	Prepaid Insurance		10,000
i.	The predetermined overhead rate for the year would be computed as follows:
	Predetermined overhead rate=	Estimated total manufacturing overhead cost
		Estimated total amount of the allocation base
	Predetermined overhead rate=	$450,000
		75,000 machine-hours
	Predetermined overhead rate=	$6 per machine-hour
	Work in Process	480,000
	Manufacturing Overhead		480,000
j.	Finished Goods	900,000
	Work in Process		900,000
k.	Accounts Receivable	1,500,000
	Sales		1,500,000
	Cost of Goods Sold	870,000
	Finished Goods		870,000