Question

Required information

Problem 19-3A Source documents, journal entries, and accounts in job order costing LO P1, P2, P3

[The following information applies to the questions displayed below.]

Widmer Watercraft’s predetermined overhead rate for the year 2017 is 200% of direct labor. Information on the company’s production activities during May 2017 follows.

Purchased raw materials on credit, $220,000.

Materials requisitions record use of the following materials for the month.

Job 136	$50,000
Job 137	33,500
Job 138	19,400
Job 139	22,800
Job 140	6,600
Total direct materials	132,300
Indirect materials	20,500
Total materials used	$152,800

Paid $15,500 cash to a computer consultant to reprogram factory equipment.

Time tickets record use of the following labor for the month. These wages were paid in cash.

Job 136	$12,200
Job 137	10,500
Job 138	37,700
Job 139	39,200
Job 140	3,400
Total direct labor	103,000
Indirect labor	25,500
Total	$128,500

Applied overhead to Jobs 136, 138, and 139.

Transferred Jobs 136, 138, and 139 to Finished Goods.

Sold Jobs 136 and 138 on credit at a total price of $525,000.

The company incurred the following overhead costs during the month (credit Prepaid Insurance for expired factory insurance).

Depreciation of factory building	$69,500
Depreciation of factory equipment	37,000
Expired factory insurance	11,000
Accrued property taxes payable	35,000

Applied overhead at month-end to the Work in Process Inventory account (Jobs 137 and 140) using the predetermined overhead rate of 200% of direct labor cost.

Problem 19-3A Part 4

4. Prepare a report showing the total cost of each job in process and prove that the sum of their costs equals the Work in Process Inventory account balance. Prepare similar reports for Finished Goods Inventory and Cost of Goods Sold.

----Problem 19-4A Overhead allocation and adjustment using a predetermined overhead rate LO P3, P4

In December 2016, Learer Company’s manager estimated next year’s total direct labor cost assuming 45 persons working an average of 2,500 hours each at an average wage rate of $20 per hour. The manager also estimated the following manufacturing overhead costs for 2017.

Indirect labor	$330,200
Factory supervision	109,000
Rent on factory building	151,000
Factory utilities	99,000
Factory insurance expired	79,000
Depreciation—Factory equipment	384,000
Repairs expense—Factory equipment	71,000
Factory supplies used	79,800
Miscellaneous production costs	47,000
Total estimated overhead costs	$1,350,000

At the end of 2017, records show the company incurred $1,574,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $615,000; Job 202, $574,000; Job 203, $309,000; Job 204, $727,000; and Job 205, $325,000. In addition, Job 206 is in process at the end of 2017 and had been charged $28,000 for direct labor. No jobs were in process at the end of 2016. The company’s predetermined overhead rate is based on direct labor cost.

Required
1-a. Determine the predetermined overhead rate for 2017.
1-b. Determine the total overhead cost applied to each of the six jobs during 2017.
1-c. Determine the over- or underapplied overhead at year-end 2017.
2. Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of 2017.

Answer 1

Report of Job costs
Work in process inventory
job 137			65,000
job 140			16,800
Balance			81,800
finished goods inventory
job 139			140,400
Balance			140,400
cost of goods sold
job 136			86,600
job 138			132,500
balance			219,100

1-a)	predetermined overhead rate = estimated overhead/estimated direct labor cost
				1,350,000/(45*2500*20)
				0.6
				60%
1-b)	total overhead cost applied to each jobs
	job no	Direct	overhead
		labor	applied
	201	615,000	369000
	202	574,000	344400
	203	309,000	185400
	204	727,000	436200
	205	325,000	195000
	206	28,000	16800
	total	2,578,000	1546800
1-c)	Factory overhead
	Actual overhead cost		1,574,000	1546800	Applied overhead cost
	underapplied overhead		27,200
2)	Date	General Journal			Debit	Credit
	31-Dec	Cost of goods sold			27,200
		Factory overhead				27,200