Question

Hudson, Inc. uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2018, Job #1 had been previously completed at a cost of $20,000 and was in Finished Goods Inventory. On January 1, 2018, Job #2 was the only job in process. The costs incurred on Job #2 during December 2017 were as follows: Direct Materials of $5,000, Direct Labor of $3,000 and Manufacturing Overhead of $6,000. There was no balance in Raw Materials at the beginning of January.

During the month of January, the company finished job #2 and began production on jobs #3 and #4. Job #3 was finished during January, but job #4 was still unfinished at the end of January.

Sales: during January, Job #1 was sold for $28,000 and Job #2 was sold for $42,000 to two different customers.

The following additional events occurred during January.

Purchased Raw Materials for $25,000, on account.

Incurred Factory Labor Costs of $16,000. Of this amount, $4,000 related to Employer Payroll Taxes.

Incurred Manufacturing Overhead Costs as follows: indirect materials $3,000, indirect labor $6,000, depreciation expense $3,000 and various other Manufacturing Overhead Costs on account $6,000.

Assigned Direct Materials and Direct Labor to Jobs as follows:

Job	Direct Materials	Direct Labor
2	$7,000	$2,000
3	$10,000	$5,000
4	$3,000	$3,000

Instructions:

Calculate the predetermined overhead rate for 2018, assuming LL, Inc. estimates total manufacturing overhead costs of $150,000 and total direct labor costs of $100,000.

Attached are job cost sheets for jobs 1, 2, 3 and 4. Enter the January 1 balances for job #2.

Prepare the journal entries to record the purchase of the raw materials, the factory labor costs incurred and the manufacturing overhead costs incurred during January.

Prepare the journal entries to record the assignment of Direct Materials, Direct Labor and Manufacturing Overhead to Work in Process. Post all costs to the job cost sheets as necessary.

Total the job cost sheets for the jobs completed in January (jobs 2 and 3).

Prepare the journal entries to move jobs 2 and 3 into Finished Goods Inventory.

Prepare the journal entries to sell job #1 for $28,000 and job #2 for $42,000, both on account to different customers.

What is the balance in the Work in Process Inventory account? What does that balance consist of?

What is the amount of over- or underapplied overhead?

Answer 1

Company Name
Individual Job sheet
Job	Job 2	Job 3	Job 4	Total
Beginning Work in progress
Direct material	5000			5000
Direct labor	3000			3000
Applied overhead	6000			6000
Beginning work in progress	14000	0	0	14000
During period
Direct material	7000	10000	3000	20000
Direct labor	2000	5000	3000	10000
Applied overhead (direct labor * 150%)	3000	7500	4500	15000
Total cost added during period	12000	22500	10500	45000
Total cost	26000	22500	10500	59000
Status	Finished goods (sold)	Finished goods (unsold)	In progress
Cost included in	Cost of goods sold	Finished goods inventory	Work in progress inventory

Estimates total manufacturing overhead costs	150000
Divided by: direct labor cost	100000
Predetermined overhead rate on % of direct labor costs	150%
Actual Manufacture overhead incurred	18000
Less: Manufacture overhead Applied	15000
Under (Over) applied of overhead	3,000
Balance of work in progress Account (Job 4)	10,500

Company Name
Journal entries
Date	Account title	Debit	Credit
A	Raw material inventory	25000
	Account payable		25000
	(To record Purchase of raw material inventory
B 1	Work in progress inventory	20000
	Raw material inventory		20000
	(To record Issue of raw material inventory into production process.)
B 2	Manufacture overhead	3000
	Raw material inventory		3000
	(To record Issue of indirect raw material inventory for Manufacturing.)
C 1	Work in progress inventory	10000
	Wages payable		10000
	(To record direct labor Consumed.)
C 2	Manufacture overhead	6000
	Wages payable		6000
	(To record indirect labor Consumed.)
D 1	Manufacture overhead	3000
	Accumulated depreciation -equipment		3000
	(To Depreciation on factory equipment.)
D 2	Manufacture overhead	6000
	Account payable		6000
	(To record Manufacture Overhead paid.)
E	Work in progress inventory	15000
	Manufacture overhead		15000
	(To record Manufacture overhead Applied to Job.)
F	Finished goods inventory	48500
	Work in progress inventory		48500
	(To record completion of Finished goods inventory.) (22500+26000)
G	Cost of goods sold	46000
	Finished goods inventory		46000
	(To record Finished goods Inventory sold.) (20000+26000)
H	Account receivable	70000
	Sales Revenue		70000
	(To record sales revenue.) (28000+42000)
I	Cost of goods sold	3000
	Manufacture overhead		3000
	(To record under applied of manufacture overhead.)