Question

Inception Company produces gadgets for the coveted small appliance market. The following data reflect activity for the year 2014​:

Inception Co. uses a​ normal-costing system and allocates overhead to work in process at a rate of 2.90 per direct manufacturing labor dollar. Indirect materials are insignificant so there is no inventory account for indirect materials.

Requirements

1.	Prepare journal entries to record the transactions for 2014 including an entry to close out​ over- or underallocated overhead to cost of goods sold. For each journal entry indicate the source document that would be used to authorize each entry. Also note which subsidiary​ ledger, if​ any, should be referenced as backup for the entry.
2.	Post the journal entries to​ T-accounts for all of the​ inventories, Cost of Goods​ Sold, the Manufacturing Overhead Control​ Account, and the Manufacturing Overhead Allocated Account.

Requirement 1. Prepare journal entries to record the transactions for 2014 including an entry to close out​ over- or underallocated overhead to cost of goods sold. For each journal entry indicate the source document that would be used to authorize each entry. Also note which subsidiary​ ledger, if​ any, should be referenced as backup for the entry. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Record the purchase of direct​ materials, $125,000.

Journal Entry
		Accounts	Debit	Credit
(1.)		TABLE
		Costs incurred: Purchases of direct materials (net) on credit $125,000 Direct manufacturing labor cost 86,000 Indirect labor 54,900 Depreciation, factory equipment 30,000 Depreciation, office equipment 7,700 Maintenance, factory equipment 26,000 Miscellaneous factory overhead 9,200 Rent, factory building 74,000 Advertising expense 95,000 Sales commissions 33,000 Inventories: January 1, 2014 December 31, 2014 Direct materials $9,600 $12,000 Work in process 6,700 25,000 Finished goods 64,000 28,000

Answer 1

1

Description	Debit $	Credit $
Direct Materials Control	125000
Accounts Payable Control		125000
(to record the direct material purchase on credit)
Work in Process Control (125000+9600-12000)	122600
Direct Materials Control		122600
(to record the transfer of DM to WIP)
Work in Process Control	86000
Manufacturing Overhead Control	54900
Wages Payable Control		140900
(to record the Direct/indirect cost of labor)
Manufacturing Overhead Control	139,200
Salaries Payable Control		26000
Accounts Payable Control		9200
Accumulated Depreciation Control		30,000
Rent Payable Control		74,000
Work in Process Control (2.90*86000)	249400
Manufacturing Overhead Allocated		249400
Finished Goods Control	439700
Work in Process Control		439700
(122600+86000+249400+6700-25000)
(to transfer the WIP to Finished goods)
Cost of goods sold	475700
Finished Goods control		475700
(438700+64000-28000)
(for recording the cost of goods sold
Manufacturing Overhead Allocated	194100
Manufacturing Overhead Control		194100
(54900+139200)
Administrative Expenses	7700
Marketing Expenses	128000
Sales Commission		33000
Advertise Exp		95000
Accumulated Depreciation, Office Equipment		7700

___________________________________

2

Direct material Control account
Particular	Amount $	Particular	Amount $
Beg. Bal	9600	material issued	122600
Purchase	125000	End. Bal	12000
End. Bal	12000

Work in progress Control account
Particular	Amount $	Particular	Amount $
Beg. Bal	6700	Cost of goods manufactured	439700
DM used	122600	End. Bal	25000
Direct Manu. Labor	86000
Manufacturing Overhead allocated	249400
	464700		464700
End. Bal	25000

Finished Good Control account
Particular	Amount $	Particular	Amount $
Beg. Bal	64000	Cost of goods sold	475700
Cost of goods manufactured	439700	End. Bal	28000
	503700		503700
End. Bal	28000

Manufacturing O.H. Control account
Particular	Amount $	Particular	Amount $
Indirect labor	54900	Close	194100
Supplies	26000
Depreciation	30,000
Rent	74000
Miscellaneous	9200
	194100

Manufacturing O.H. Allocated account
Particular	Amount $	Particular	Amount $
Ti Close	249400	WIP control account	249400