Question

Question 2      
      
Westel Ltd uses a job costing system. At the beginning of the month of June, two orders were process as follows:       
      

Order 88   Order 105
Direct Materials $1,000 $900
Direct Labour $1,200 $200
Overhead allocation $1,800 $300

There was no inventory in finished goods on June 01. During the month of June orders numbered 106 through 120, inclusive were put into process.       
      
Direct materials requirements amounted to $13,000, direct labour costs for the month were $20,000
and actual   manufacturing overhead recorded during the month amounted to $28,000.      
      
The only order in process at the end of June was Order 120, and the costs incurred for this order
were $1,150 of direct materials and $1,000 of direct labour.       
      
In addition, Order 118 which was 100% complete, was still on hand on June 30. Total costs for this
order was $3,300.      

The firm’s overhead allocation rate in June was the same used as that used in May and is based on
labour cost.       

Prepare journal entries, with supporting calculations, to record the cost of goods manufactured, the cost of goods sold and the closing of the overapplied or underapplied overhead to the cost of goods sold.    (You will need to provide a Cost of Goods Manufactured statement and Cost of Goods Sold Statement)   
          

Answer 1

Beginning work in process:

	Order 88	Order 105	Total
Direct material	$1,000	$900	$1,900
Direct labour	1,200	200	1,400
Overhead allocation	1,800	300	2,100
Total costs	$4,000	$1,400	$5,400

Overhead allocation rate = $2,100 / 1,400 = 1.5 per direct labor cost

Ending work in process (Order 120) = $1,150+1,000+1,500 (1,000*1.5) = $3,650

Schedule of Cost of Goods Manufactured
Direct materials	$13,000
Direct labour	20,000
Overhead applied (20,000*1.5)	30,000
Total manufacturing overhead		$63,000
Add: Beginning work in process		5,400
Less: Ending work in process		3,650
Cost of goods manufactured		$64,750

Schedule of Cost of Goods Sold
Cost of goods manufactured	$64,750
Add: Beginning finished goods inventory	0
Cost of goods available for sale	64,750
Less: Ending finished goods inventory	3,300
Cost of goods sold	$61,450

Over or underapplied overhead = Actual overhead - Applied overhead

Over or underapplied overhead = $28,000 - 30,000

Overapplied overhead = $2,000

General Journal	Debit	Credit
Finished goods inventory	$64,750
Work in process inventory		$64,750
Cost of goods sold	$61,450
Finished goods inventory		$61,450
Manufacturing overhead	$2,000
Cost of goods sold		$2,000