Question

PROBLEM 16 See calendar for due date. Use the working papers for provided.

Dorman Products Company uses a job order cost system and applies overhead to production on the basis of direct labor cost. On January 1, 2017, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $27,000; direct labor $16,000; and manufacturing overhead $24,000. Job No. 49 had been completed at a cost of $99,000 and was part of finished goods inventory. There was a $30,000 balance in the Raw Materials inventory account.

During the month of January, the company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were sold on account during the month for $120,000 and $150,000, respectively. The following additional events occurred during the month.

1. Purchased additional raw materials of $260,000 on account.

2. Incurred factory labor costs of $61,000. Of this amount $11,000 is related to employer payroll taxes.

3. Incurred manufacturing overhead costs as follows: indirect materials $5,000; indirect labor $17,000; depreciation expense $22,000 and accounts payable $9,000 (for utilities and repairs).

4. Assigned direct materials and direct labor to jobs as follows.

Job No. Direct Materials Direct Labor

50 $ 8,000 $ 7,000

51 29,000 16,000

52 32,000 20,000

5. The company uses direct labor cost as the activity base to assign overhead.

Instructions

(a) Calculate the predetermined overhead rate for the year 2017, assuming Dorman Products Company Manufacturing estimates total manufacturing overhead costs of $856,800 and direct labor costs of $680,000.

(b) Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job No. 50. (This can be done also when you get to parts d. and e.)

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

(d) Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in (a). Post all costs to the job cost sheets as necessary.

(e) Prepare the journal entry to record the completion of Job 50 and Job 51 during the month.by using the total from the job cost sheets that were completed during the month.

(f) Prepare the journal entries to record the sale of Job 49 and Job 50 during the month.

(g) What is the balance in the Work in Process Inventory account at the end of the month? What does this balance consist of? (For example which Job and what specific costs.)

(h) What is the amount of over- or underapplied overhead for the month?

Answer 1

(a)

Predetermined overhead rate=Estimated manufacturing overhead/Estimated direct labor cost=856800/680000=$ 1.26 per direct labor cost

©

No.

Account titles and explanation

Debit

Credit

1

Raw materials inventory

260000

Accounts payable

260000

(To record purchase of raw materials)

2

Factory labor

61000

Salary and wages payable

61000

(To record labor cost paid)

(including payroll taxes)

3

Manufacturing overhead

53000

Raw materials inventory

5000

Factory labor

17000

Accumulated depreciation

22000

accrued expense

9000

(To record manufacturing overhead cost incurred)

(d)

No.

Account titles and explanation

Debit

Credit

1

Work in process inventory

69000

Raw materials inventory

69000

(8000+29000+32000)

(To record assignment of direct materials)

2

Work in process inventory

Factory labor

(7000+16000+20000)

43000

(To record assignment of factory labor)

43000

3

Work in process inventory

54180

Manufacturing overhead

54180

($1.26*Direct labor cost=1.26*43000)

(To record assignment of manufacturing overhead)

Job cost sheets:

Job 50

$

$

Jan 1. balance

Direct material

27000

Direct labor

16000

Manufacturing overhead

24000

67000

Current year expenses:

Direct material

8000

Direct labor

7000

Manufacturing overhead

(7000*1.26)

8820

Total cost

90820

Job 51

$

$

Jan 1. balance

0

Current year expenses:

Direct material

29000

Direct labor

16000

Manufacturing overhead

(16000*1.26)

20160

Total cost

65160

Job 52

$

$

Jan 1. balance

0

Current year expenses:

Direct material

32000

Direct labor

20000

Manufacturing overhead

(20000*1.26)

25200

Total cost

77200

€

No.

Account titles and explanation

Debit

Credit

Finished goods inventory (90820+65160)

155980

Work in process inventory

155980

(To record completion of Jobs 50 and 51)

f.

No.

Account titles and explanation

Debit

Credit

Accounts receivable

270000

Sales revenue

(120000+150000)

270000

(To record sale of Job 49 and 50)

Cost of goods sold

(99000+90820)

189820

Finished goods inventory

189820

(To record cost of Job 49 and 50)

g.

Work in process inventory:

$

$

Jan 1 balance

(Job 50 beginning balance)

67000

Add: Cost assigned

Direct material

69000

Direct labor

43000

Manufacturing overhead

54180

166180

233180

Less: cost of jobs transferred to finished goods

155980

Jan 31 balance

77200

This represents the cost to date of Job 52 which is still in process

h.

Actual manufacturing overhead=$ 53000

Manufacturing overhead applied=54180

Since applied overhead is more than overhead incurred,Hence over application of overhead

Over-applied overhead=54180-53000=$ 1180

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