Question

The May 1^st balances for the following accounts are:

Raw Materials Inventory               $   6,500

Work in Process Inventory          $   5,400 (Job 1006 - $3,100; Job 1007 - $2,300)

Finished Goods Inventory             $          0

The transactions for May are as follows:

a.   Purchased materials on account, $25,000.

b.   Issued materials to production as follows:

Job 1006 - $2,700

Job 1007 - $5,500

Job 1008 - $2,300

Job 1009 - $3,800

Job 1010 - $3,000

Job 1011 - $3,700

c.Issued indirect materials to production, $5,750.

d.The company processed payroll and incurred the following costs:

a.The direct labor rate is $14.50 per hour.

Direct labor hours (DLH) incurred are as follows:

(Job 1006 – 140 DLH; Job 1007 – 56 DLH; Job 1008 – 305 DLH; Job 1009 – 75 DLH;

Job 1010 – 125 DLH; Job 1011 – 310 DLH);

b.Indirect factory labor, $30,800;

c.Selling department salary, $10,500;

d.Selling department commissions, $5, 900;

e.Administrative personnel salary, $12,400.

e.Incurred various actual costs on account:

Depreciation on factory equipment, $10,100;

Depreciation on equipment used by administrative personnel, $1,400;

Factory utilities, $1,050;

Corporate headquarters utilities, $450;

Property Taxes on factory equipment, $5,950;

Property taxes on corporate headquarters, $2,090;

Maintenance, 1,150 for corporate headquarters and $7,450 for plant.

f.The company uses normal costing. It allocates manufacturing overhead costs using budgeted rate per direct labor hour. Budgeted manufacturing overhead costs for the period were $590,000 and budgeted direct labor-hours were 10,000 DLHs. Calculate the predetermined overhead rate and journalize the applied manufacturing overhead cost for the period (Show your calculations).

g.Completed Jobs #1006, 1007, and 1011. (Hint: you will need to determine the cost of each job – see schedule of job cost.)

h.Sold Jobs #1006 and #1007. Customers were billed $25,000 for Job #1006 and $44,400 for Job #1007.

Requirements:

1.Prepare T-accounts for Manufactory Overhead. Compute the amount of over/under-applied overhead. State if the account is over/under-applied. Close any over/under applied overhead to the Cost of Goods Sold account (prepare a journal entry in the General Journal).

Answer 1

Pre-determined Overheads rate: Estimated Overheads/ Estimated Labour hours
			($590,000 /10,000 hours) = $ 59 per labour hour
Actual Labour hours used:
Job1006		140
Job 1007		56
Job 1008		305
Job 1009		75
Job 1010		125
Job 1011		310
Total Labour hours		1011
Actual Overheads incurred:
Indirect Material			5750
Indirect labour			30800
Depreciation on Factory equipment			10100
Factory utilities			1050
Property tax			5950
Maintenance on plant			7450
Total Overheads incurred				61100
Less: Overheads applied				59649
(1011 LDH @ $5.90)
Under-applied overheads				1451
FACTORY OVERHEADS
Indirect Material		5750	WIP Inv		59,649
Indirect labour		30800
Depreciation on Factory equipment		10100
Factory utilities		1050
Property tax		5950
Maintenance on plant		7450
Total Overheads incurred		61100
Balance		1,451
Journal entry for Undeapplied overheads:
Cost of Goods sold Account Dr.				1451
	Factory overheads				1451