Question

Madison Company uses a job-order costing system. The following transactions occurred in October:

1. Raw materials purchased on account, $210,000.
2. Raw materials used in production, $190,000 ($178,000 direct materials and $12,000 indirect materials).
3. Accrued direct labor cost of $90,000 and indirect labor cost of $110,000.
4. Depreciation recorded on factory equipment, $40,000.
5. Other manufacturing overhead costs accrued during October, $70,000.
6. The company applies manufacturing overhead cost to production using a predetermined rate of $8 per machine-hour. A total of 30,000 machine-hours were used in October.
7. Jobs costing $520,000 according to their job cost sheets were completed during October and transferred to Finish Goods.
8. Jobs that had cost $480,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 25% above cost.

Required:

1. Post the relevant transactions from above to each T account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $42,000.

Is the Manufacturing Overhead account over or under applied and by how much

Provide the Ending Balance for Each T-Account

Raw Materials Inventory BLANK-1 DEBIT

Work in Process Inventory BLANK-2 DEBIT

Manufacturing Overhead BLANK-3 CREDIT

Finished Goods Inventory BLANK-4 DEBIT

Accounts Receivable BLANK-5 DEBIT

Accumulated Depreciation BLANK-6 CREDIT

Accounts Payable BLANK-7 CREDIT

Salary Payable BLANK-8 CREDIT

Sales Revenue BLANK-9 CREDIT

Cost of Goods Sold BLANK-10 DEBIT

Answer 1

Solution:

	Particulars	Debit	Credit
A	Raw Materials Inventory	210000
	Accounts Payable		210000
B	Work in Process	178000
	Manufacturing Overhead	12000
	Raw Materials Inventory		190000
C	Work in Process	90000
	Manufacturing Overhead	110000
	Salaries and Wages Payable		200000

D	Manufacturing Overhead	40000
	Accumulated Depreciation		40000

E	Manufacturing Overhead	70000
	Accounts Payable		70000

F	Work in Process	240000
	Manufacturing Overhead		240000
G	Finished Goods	520000
	Work in Process		520000

H	Cost of Goods Sold	480000
.	Finished Goods		480000

I	Accounts Receivable	600000
	Sales (480000*125%)		600000

T-Accounts

Raw Material Inventory
Opening Balance	0	B	190000
A	210000
Balance	20000
Work in Process
Opening Balance	42000
B	178000	G	520000
C	90000
F	240000
Balance	30000

Manufacturing Overhead
Balance	12000	F	240000
C	110000
E	70000
D	40000
	232000		240000
Finished Goods
Opening Balance	0	H	480000
G	520000
Balance	40000

Cost of Goods Sold
H	480000
Balance	480000
Accounts Receivable
I	600000
Balance	600000
Accounts Payable
		E	70000
		Balance	70000
Salaries Payable
		C	200000
		Balance	200000
Accumulated Depreciation
		D	40000
		Balance	40000

The total Manufacturing Ovehead incurred is $232,000

Applied Manufacturing Overhead = 30000*$8 = $240,000

Therefore, Manufacturing Overhead account is over-applied by $8000