Question

Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. It started only two jobs during March—Job P and Job Q. Job P was completed and sold by the end of the March and Job Q was incomplete at the end of the March. The company uses a plantwide predetermined overhead rate based on direct labor-hours. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March):

Estimated total fixed manufacturing overhead	$	10,000
Estimated variable manufacturing overhead per direct labor-hour	$	1.00
Estimated total direct labor-hours to be worked		2,000
Total actual manufacturing overhead costs incurred	$	12,500
Job P Job Q Direct materials $ 13,000 $ 8,000    Direct labor cost $ 21,000 $ 7,500    Actual direct labor-hours worked 1,400 500

1.	What is the company’s predetermined overhead rate?

2. How much manufacturing overhead was applied to Job P and Job Q?        JOB P JOB Q Manufactured Overhead Applied 3. What is the direct labor hourly wage rate? JOB P JOB Q Direct labor hourly wage rate 4-a. If Job P includes 20 units, what is its unit product cost? 4-b. What is the total amount of manufacturing cost assigned to Job Q as of the end of March (including applied overhead)? 5. Assume the ending raw materials inventory is $1,000 and the company does not use any indirect materials. Prepare the journal entries to record raw materials purchases and the issuance of direct materials for use in production. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record the purchases of raw materials on account. Transaction General journal Debit Credit 1.
Record the issuance of direct materials for use in production. Transaction General Journal Debit Credit 2. 6. Assume that the company does not use any indirect labor. Prepare the journal entry to record the direct labor costs added to production. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Record entry to direct labor costs added to production. Transaction General Journal DR CR 1. 7 . Prepare the journal entry to apply manufacturing overhead costs to production. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record entry to apply manufacturing overhead costs to production. Transaction GJ DR CR 1. 8.Assume the ending raw materials inventory is $1,000 and the company does not use any indirect materials. Prepare a schedule of cost of goods manufactured. 9.Prepare the journal entry to transfer costs from Work in Process to Finished Goods. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Record entry to transfer costs from Work in Process to Finished Goods. transaction GJ DR CR 1. 10.Prepare a completed Work in Process T-account including the beginning and ending balances and all debits and credits posted to the account. 11.Prepare a schedule of cost of goods sold. 12.Prepare the journal entry to transfer costs from Finished Goods to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 13. What is the amount of underapplied or overapplied overhead? 14. Prepare the journal entry to close the amount of underapplied or overapplied overhead to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Record entry to close the amount of underapplied or overapplied overhead to Cost of Goods Sold. 15.Assume that Job P includes 20 units that each sell for $3,000 and that the company’s selling and administrative expenses in March were $14,000. Prepare an absorption costing income statement for March.

Answer 1

1. Predetermined overhead rate = Estimated total manufacturing overheads / estimated total direct labor hours
= 10,000+(2,000*1) / 2,000 = 12,000 / 2,000 = $6 per DLH

2. Manufacturing overhead was applied to Job P and Job Q:
Job P = 1,400*$6 = 8,400
Job Q = 500*$6 = 3,000

3. Direct labor hourly wage rate for Job P and Job Q:
Direct labor hourly wage rate = Direct labor cost / Actual hours worked
Job P = 21,000 / 1,400= $15 per hour
Job Q = 7,500 / 500 = $15 per hour

4a. If Job P includes 20 units, what is its unit product cost?
Calculate the unite product cost:
Direct Materials = 13,000
Direct Labor =21,000
Overheads = (6 * 1,400) = 8,400
Total Cost = 42,400
Number of units = 20
Cost per unit = 2,120

4.b. What is the total amount of manufacturing cost assigned to Job Q as of the end of March (including applied overhead)?
Direct Materials =8,000
Direct Labor Cost =7,500
Overhead = 3,000
Total Costs = 18,500 is the total Cost that assigned to Job Q.

5. Journal entry:

Transaction	General journal	Debit	Credit
1. purchases of raw materials on account	Raw materials    Accounts payable (13,000+8,000+1,000)	22,000	22,000
2. issuance of direct materials for use in production	Work in progress             Raw materials	21,000	21,000

6. journal entry to record the direct labor costs added to production:
Work in progress (21,000+7,500) 28,500
        Wages payable                                  28,500

7. journal entry to apply manufacturing overhead costs to production.
Work in progress (8,400+3,000)       11,400
        Manufacturing overhead                                  11,400

8. Prepare a schedule of cost of goods manufactured:

Raw materials beginning	0
Add: Purchases	22,000
Total raw material available	22,000
Less: Ending raw materials	(1,000)
Raw materials used in production		21,000
Add: Direct labor		28,500
Add: Manufacturing OH		11,400
Total manufacturing cost		60,900
Add: Beginning work in progress (8,000+7,500+3,000 of Q)		18,500
Cost of goods manufactured		42,400

9. journal entry to transfer costs from Work in Process to Finished Goods.
Finished goods 42,400
    Work in progress     42,400

10. Work in Process T-account :

Beg. balance	0
Purchases	21,000
B	28,500
C	11,400	D	42,400
End bal.	18,500

11. Schedule of cost of goods sold:

Beginning inventory	0
Add: Cost of goods manufactured	42,400
Cost of goods available for sale	42,400
Less: Ending finished goods inventory	0
unadjusted cost of goods sold	42,400

12. journal entry to transfer costs from Finished Goods to Cost of Goods Sold:
Cost of goods sold 42,400
   Finished goods sold             42,400
13. Amount of under-applied or over-applied overhead:
Amount of under-applied or over-applied overhead = Actual overheads - Manufacturing overhead applied
= 12,500 - 11,400 = $1,100 is the under-applies overhead

14. journal entry to close the amount of under applied or over applied overhead to Cost of Goods Sold:
Cost of goods sold 1,100
    Manufacturing overhead    1,100

15. Assume that Job P includes 20 units that each sell for $3,000 and that the company’s selling and administrative expenses in March were $14,000.
Absorption costing income statement for March:
Sales = (20*3,000) = 60,000
Less: cost of goods sold = 42,400
Gross margin = 17,600
Less: selling and administrative expenses = (14,000)
Profit = 3,600