Question

ABC Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2014, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $20,000, direct labor $12,000, and manufacturing overhead $16,000. As of January 1, Job No. 49 had been completed at a cost of $90,000 and was part of finished goods inventory. There was a $15,000 balance in the Raw Materials Inventory account.

During the month of January, ABC 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 $122,000 and $158,000, respectively. The following additional events occurred during the month.

1. Purchased additional raw materials of $90,000 on account.
2. Incurred factory labor costs of $70,000. Of this amount $16,000 related to employer payroll taxes.
3. Incurred manufacturing overhead costs as follows: indirect materials $17,000; indirect labor $20,000; depreciation expense on equipment $19,000; and various other manufacturing overhead costs on account $16,000.
4. Assigned direct materials and direct labor to jobs as follows:

Job No.	Direct Materials	Direct Labor
50	$10,000	$ 5,000
51	39,000	25,000
52	30,000	20,000

Required:

All answers will be entered in the Excel Spreadsheet that you will download. The spreadsheet has tabs labeled for the different parts of the problem. Once you have completed the problem, you will upload the spreadsheet to the Unit 6: Assignment #4 Dropbox. You must upload the file before 11:59 pm on Tuesday.

1. Calculate the predetermined overhead rate for 2014, assuming ABC Company estimates total manufacturing overhead costs of $980,000; direct labor costs of $700,000; and direct labor hours of 20,000 for the year.
2. Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job No. 50.
3. 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.
4. 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.
5. Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or entries) to record the completion of any job(s) during the month.
6. Prepare the journal entry (or entries) to record the sale of any job(s) during the month.
7. What is the balance in the Finished Goods Inventory account at the end of the month?
8. What is the amount of over-applied or under-applied overhead?

Answer 1

predetermined overhead rate
Estimated manufacturing overhead/total estimated direct labor costs
980,000/700,000
140.00%
job no 50
Date		Direct	direct	MOH
		materials	labor
beg.		20,000	12,000	16,000
Jan		10,000	5,000	7,000
		30,000	17,000	23,000
cost of completed job
Direct materials				30,000
direct labor				17,000
MOH				23,000
total cost				70,000
job no 51
Date		Direct	direct	MOH
		materials	labor
Jan		39,000	25,000	35,000
		39,000	25,000	35,000
cost of completed job
Direct materials				39,000
direct labor				25,000
MOH				35000
total cost				99,000
Job 52
Date		Direct	direct	MOH
		materials	labor
Jan		30,000	20,000	28,000
No	Account titles & Explanations				Debit	Credit
1)	Raw materials inventory				90,000
	Accounts payable					90,000
2)	Factory labor				70,000
	Factory wages payable					54,000
	employer payroll taxes payable					16,000
3)	manufacturing overhead				72,000
	raw materials inventory					17,000
	Factory labor					20,000
	Accumulated depreciation					19,000
	Accounts payable					16,000
No	Account titles & Explanations				Debit	Credit
1)	Work in process inventory				79,000
	Raw materials inventory					79,000
2)	work in process inventory				50,000
	Factory labor					53,000
3)	Work in process inventory				60000
	manufacturing overhead					60,000
	Account titles & Explanations				Debit	Credit
	finished goods inventory				169,000
	work in process inventory					169,000
	(job 50 +job 51 =
No	Account titles & Explanations				Debit	Credit
	Accounts receivable				280000
	sales					280,000
	cost of goods sold
	finished goods inventory				160,000
	(job 49+job 50)					160,000
finished goods inventory			99,000	Job No 51
			finished goods inventory
	opening		90,000	COGS		160,000
	WIP		169,000
	end bal		99,000
manufacturing overhead			12,000	under applied
		manufacturing overhead
	Actual		72,000	Applied		60,000
	bal		12,000