Question

In: Accounting

The May 1st balances for the following accounts are: Raw Materials Inventory               $   6,500 Work...

The May 1st 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).

Solutions

Expert Solution

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

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