Question

ABC Company uses a job order cost system with overhead applied to products on the basis of machine hours. For the upcoming year, the company estimated its total manufacturing overhead cost at $259,530 and total machine hours at 63,300. During the first month of operations, the company worked on three jobs and recorded the following actual direct materials cost, direct labor cost, and machine hours for each job:    

	Job 101			Job 102			Job 103			Total
Direct materials used	$	11,800		$	8,800		$	4,900		$	25,500
Direct labor	$	16,600		$	6,300		$	4,800		$	27,700
Machine hours		1,500	hours		2,400	hours		800	hours		4,700	hours

Job 101 was completed and sold for $51,700.
Job 102 was completed but not sold.
Job 103 is still in process.

Actual overhead costs recorded during the first month of operations totaled $14,770.

Required:

1. Prepare a journal entry showing the transfer of Job 102 into Finished Goods Inventory upon its completion.

2. Prepare the journal entries to recognize the sales revenue and cost of goods sold for Job 101.

3. Prepare the journal entry to transfer the balance of the Manufacturing Overhead account to Cost of Goods Sold.

(If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round your intermediate calculations.)

Answer 1

Overhead rate = $259530 / 63300 = $4.10 per machine hour

	Job 101	Job 102	Job 103	Total
Direct Material	$ 11,800	$       8,800	$        4,900	$      25,500
Direct Labor	$ 16,600	$       6,300	$        4,800	$      27,700
Overhead	$     6,150	$       9,840	$        3,280	$      19,270
Total	$ 34,550	$    24,940	$      12,980	$      72,470

1.

Account Titles	Debit	Credit
Finished Goods Inventory	$      24,940
Work in Process Inventory		$         24,940
(To transfer Job 102)

2.

Account Titles	Debit	Credit
Accounts Receivable	$      51,700
Sales Revenue		$         51,700
(To record sale of Job 101)
Cost of Goods Sold	$      34,550
Finished Goods Inventory		$         34,550
(To record cost of goods sold)

3.

Account Titles	Debit	Credit
Manufacturing Overhead	$        4,500
Cost of Goods Sold		$           4,500
(To close Over applied overhead)

Over applied Overhead = $19270-14770 = $4500