Question

Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. 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 $ 25,000, direct labor $ 15,000, and manufacturing overhead $ 20,000. As of January 1, Job No. 49 had been completed at a cost of $ 112,500 and was part of finished goods inventory. There was a $ 18,750 balance in the Raw Materials Inventory account.

During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $ 152,500 and $ 197,500, respectively. The following additional events occurred during the month.

1.		Purchased additional raw materials of $ 112,500 on account.
2.		Incurred factory labor costs of $ 87,500. Of this amount $ 20,000 related to employer payroll taxes.
3.		Incurred manufacturing overhead costs as follows: indirect materials $ 21,250; indirect labor $ 25,000; depreciation expense on equipment $ 15,000; and various other manufacturing overhead costs on account $ 20,000.
4.		Assigned direct materials and direct labor to jobs as follows.

Job No.		Direct Materials		Direct Labor
50		$ 12,500		$ 6,250
51		48,750		31,250
52		37,500		25,000

Calculate the predetermined overhead rate for 2017, assuming Lott Company estimates total manufacturing overhead costs of $ 1,050,000, direct labor costs of $875,000, and direct labor hours of  25,000 for the year. (Round answer to the nearest whole percent, e.g. 25%.)

Predetermined overhead rate

%

eTextbook and Media

List of Accounts

Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job No. 50.

Job No. 50
Date		Direct Materials		Direct Labor		Manufacturing Overhead
Beg.		$		$		$
Jan.
		$		$		$
Cost of completed job
Direct materials						$
Direct labor
Manufacturing overhead
Total cost						$

Job No. 51
Date		Direct Materials		Direct Labor		Manufacturing Overhead
Jan.		$		$		$
		$		$		$
Cost of completed job
Direct materials						$
Direct labor
Manufacturing overhead
Total cost						$

Job No. 52
Date		Direct Materials		Direct Labor		Manufacturing Overhead
Jan.		$		$		$

eTextbook and Media

List of Accounts

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. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)
(2)
(3)

eTextbook and Media

List of Accounts

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). (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)
(2)
(3)

eTextbook and Media

List of Accounts

Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry to record the completion of any job(s) during the month. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

eTextbook and Media

List of Accounts

Prepare the journal entries to record the sale of any job(s) during the month. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)
	(To record sale of jobs)
(2)
	(To record cost of jobs)

eTextbook and Media

List of Accounts

What is the balance in the Finished Goods Inventory account at the end of the month? What does this balance consist of?

Finished Goods Inventory

$

Job No. 50Job No. 51Job No. 52Jobs 50 and 51Jobs 51 and 52Jobs 50 and 52

eTextbook and Media

List of Accounts

What is the amount of over- or underapplied overhead?

Manufacturing Overhead

$

OverappliedUnderapplied

eTextbook and Media

List of Accounts

Answer 1

Predetermined overhead rate = $1050000/$875000 = 120% of direct labor cost

Job No. 50
Date	Direct Materials	Direct Labor	Manufacturing Overhead
Beg.	25000	15000	20000
Jan.	12500	6250	7500
	37500	21250	27500
Cost of completed job
Direct Materials			37500
Direct Labor			21250
Manufacturing Overhead			27500
Total cost			86250
Job No. 51
Date	Direct Materials	Direct Labor	Manufacturing Overhead
Jan.	48750	31250	37500
	48750	31250	37500
Cost of completed job
Direct Materials			48750
Direct Labor			31250
Manufacturing Overhead			37500
Total cost			117500
Job No. 52
Date	Direct Materials	Direct Labor	Manufacturing Overhead
Jan.	37500	25000	30000

No.	Account Titles and Explanation	Debit	Credit
1	Raw materials inventory	112500
	Accounts payable		112500
2	Factory labor	87500
	Factory wages payable		67500
	Employer payroll taxes payable		20000
3	Manufacturing Overhead	81250
	Raw materials inventory		21250
	Factory labor		25000
	Accumulated depreciation-equipment		15000
	Accounts payable		20000

No.	Account Titles and Explanation	Debit	Credit
1	Work in process inventory ($12500 + $48750 + $37500)	98750
	Raw materials inventory		98750
2	Work in process inventory ($6250 + $31250 + $25000)	62500
	Factory labor		62500
3	Work in process inventory ($62500 x 120%)	75000
	Manufacturing Overhead		75000

Account Titles and Explanation	Debit	Credit
Finished goods inventory ($86250 + $117500)	203750
Work in process inventory		203750

No.	Account Titles and Explanation	Debit	Credit
1	Accounts receivable	350000
	Sales revenue ($152500 + $197500)		350000
	(To record sale of jobs)
2	Cost of goods sold ($112500 + $86250)	198750
	Finished goods inventory		198750
	(To record cost of jobs)

Finished Goods Inventory:

$   117,500

Job No. 51

Manufacturing Overhead:

$         6,250

Underapplied

Manufacturing overhead incurred $81250 - Manufacturing overhead applied $75000 = Manufacturing overhead under-applied $6250