Question

On June 1, Vernon Company had a beginning work-in-process inventory of

20,000 units 100% complete as to materials and 60% as to Direct Labour [DL], and Manufacturing Overhead[MOH].

These units contained $60,000 of direct materials and $50,000 of direct labour cost and an appropriate amount of overhead applied.

Manufacturing Overhead [MOH], is applied at the rate of 75% of direct labour cost.

            Vernon uses a weighted-average process-costing system. All raw material is added at the start of the manufacturing process; conversion cost is incurred evenly throughout production – for the purpose of this exercise, you must add Manufacturing Overhead [MOH] and Direct Labour to determine Conversion costs.

             At the end of the current cycle, the company shipped out  55,000 units.

                                    

            The following data relate to activity during June:

            

Ending work in process,  (100% of the         material and 40% complete as to conversion)	15,000  units
Direct materials used ($)                 $135,000
Direct Labour                                 $200,000

            

            

            Required:

1. Prepare journal entries for 1.  Application of overhead costs

                                               2.  Direct labour and material costs

                                                  3. Transfer of production to Finished Goods

Answer 1

Overhead cost = Direct labor cost * 75%

Beginning overhead cost = 50,000 * 75% = 37,500 $

Current overhead cost = 200,000 * 75% = 150,000 $