Question

Super Speed Motor Co. assembles motors of sport cars. It jobs costing system has two direct cost categories (direct materials and direct labors) and one indirect cost pool ( manufacturing overhead allocated at a budgeted rate per machine hour.) The budgeted manufacturing overhead was $800,000 and the budgeted machine hours 200,000. The following data ( in thousands ) pertain to January 2020:

a) Direct materials and supplies purchased on account ………………………………… 22
b) Direct materials used ………………………………………………………………… 19
c) Indirect materials issued to various production departments …………………… … 2
d) Direct manufacturing labor paid…….………………………………………………. 20
e) Indirect manufacturing labor incurred by various departments …………………….. 8
f) Manufacturing overhead was incurred as follows:
Depreciation ……………………………………………………………………….. 2
Expired insurance …………………………………………………………………. 1
Miscellaneous manufacturing overhead ……………………………………….….. 4
g) Completed jobs and transferred to the warehouse………………………………….. 54
h) Credit sales ………………………………………………………………………… 63
i) Cost of goods sold …………………………………………………………………. 50
j) Used machine hours during January………….…………………………………… 4 hours

Required:
1. Prepare general journal entries to summarize January transactions.
2. As your final entry, dispose of the month end over or underallocated manufacturing overhead as a direct write off to Cost of Goods Sold.

Answer 1

	General Journal	Debit	Credit
a	Raw material inventory	$22,000
	Accounts payable		$22,000
b	Work in process inventory	$19,000
	Raw material inventory		$19,000
c	Manufacturing overhead	$2,000
	Raw material inventory		$2,000
d	Work in process inventory	$20,000
	Cash		$20,000
e	Manufacturing overhead	$8,000
	Factory labor		$8,000
f	Manufacturing overhead	$7,000
	Accumulated depreciation		$2,000
	Prepaid insurance		1,000
	Accounts payable		4,000
g	Finished goods inventory	$54,000
	Work in process inventory		$54,000
h	Accounts receivable	$63,000
	Sales revenue		$63,000
i	Cost of goods sold	$50,000
	Finished goods inventory		$50,000
j	Cost of goods sold	$1,000
	Manufacturing overhead		$1,000

Allocated manufacturing overhead = $800,000 / 200,000 * 4,000 = $16,000

Actual manufacturing overhead incurred = $2,000+8,000+7,000 = $17,000

Underallocated manufacturing overhead = $17,000 - 16,000 = $1,000