Question

Question 3

Bergamo Bay Co. uses enterprise resource planning (ERP) system to combine the business activities with accounting activities. ERP system provides an integrated and continuously updated view of core business processes. The system can track business resources, i.e. cash, raw materials, etc., and shares data across various departments (manufacturing, purchasing, sales, accounting, etc.), and various stakeholders of the company. The system also can provide timely information and report to variable users within the company. On December 31, 2019 ERP system generated the following trial balance. The company’s manager knows something is wrong with the trial balance because it does not show any balance for Work in Process Inventory but does show a balance for the Factory Payroll and Factory Overhead account.

Debit Credit

Cash $ 57,600

Accounts receivable 50,400

Raw materials inventory 31,200

Work in process inventory 0

Finished goods inventory 10,800

Prepaid rent 3,600

Accounts payable $ 12,600

Notes payable 16,200

Common stock 36,000

Retained earnings 104,400

Sales 216,000

Cost of goods sold

Factory payroll 126,000

19,200

Factory overhead 32,400

Operating expenses 54,000

Totals $ 385,200 $ 385,200

After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.

Materials requisition 21-3010: $ 5,520 direct materials to Job 402

Materials requisition 21-3011: $ 9,120 direct materials to Job 404

Materials requisition 21-3012: $ 2,520 indirect materials

Labor time ticket 6052: $ 6,000 direct labor to Job 402

Labor time ticket 6053: $ 9,600 direct labor to Job 404

Labor time ticket 6054: $ 3,600 indirect labor

Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 200% of direct labor cost.

Required:

(1) Prepare journal entries to assign the costs below:

(a) Direct materials costs to Work in Process Inventory.

(b) Direct labor costs to Work in Process Inventory.

(c) Overhead costs to Work in Process Inventory.

(d) Indirect materials costs to the Factory Overhead account.

(e) Indirect labor costs to the Factory Overhead account.

(2) According the entries from part (1) related to factory overhead, determine the amount of under- or overapplied overhead for the year.

(3) Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold, assuming the amount is not material.

Answer 1

Answer to part (1)
	Particulars	Working	Debit	Credit
(a)	Work-in-process Inventory	5520+9120	$ 14,640.00
	To Direct Material Cost			$ 14,640.00
(b)	Work-in-process Inventory	6000+9600	$ 15,600.00
	To Direct Labor Cost			$ 15,600.00
(c)	Work-in-process Inventory	15600*200%	$ 31,200.00
	To Overhead cost			$ 31,200.00
(d)	Factory Overhead A/c		$ 2,520.00
	To Indirect Material A/c			$ 2,520.00
(e)	Factory Overhead A/c		$ 3,600.00
	To Indirect Labor A/c			$ 3,600.00
Answer to part (2)
As we see in trial balance, factory payroll shows balance of $ 19,200/-, while actual payroll 6000+9600 = $ 15,600/- So, factory overhead under-applied by $ 3600 for the year.
Answer to part (3)
	Factory Overhead		$ 3,600.00
	To Factory Payroll			$ 3,600.00