Question

Lu Technology Co. manufactures DVDs for computer software and entertainment companies. Lu uses job order costing. On June 2,Lu began production of 5,800 ​DVDs, Job​ 423, for Portrait Pictures for $1.20 sales price per DVD. Lu promised to deliver the DVDs to Portrait Pictures by June 5. Lu incurred the following direct​ costs:

Data table:

Date	Labor Time Record No.	Description	Amount
6/02	655	10 hours @ $14 per hour		$140
6/03	656	20 hours @ $13 per hour		260

	Materials
	Requisition
Date	No.	Description	Amount
6/02	63	31 lbs. polycarbonate plastic @ $12 per lb.	$372
6/02	64	25 lbs. acrylic plastic @ $27 per lb.	675
6/03	74	3 lbs. refined aluminum @ $48 per lb.	144

more info:

LuTechnology allocates manufacturing overhead to jobs based on the relation between estimated overhead of $550,000 and estimated direct labor costs of $440,000. Job 423 was completed and shipped on June 3.

Requirement 1. Prepare a job cost record for Job 423. Calculate the predetermined overhead allocation rate​ (round to two decimal​ places); then allocate manufacturing overhead to the job.

Begin by determining the total amount of direct materials and direct labor incurred on the job.​ Next, calculate the predetermined overhead allocation rate and apply manufacturing overhead to the job.​ Lastly, compute the total cost of Job 423 and the cost per DVD.

Job Cost Record
Job No.	423
Customer Name		Portrait
Job Description		5,800 DVDs
Date Promised 6-5
	Direct materials
	Requisition
Date	Number	Amount
6–2	63	$372
6–2	64	675
6–3	74	144
Totals

Date Started 6-2
Direct labor
Labor Time
Record
Number	Amount
655	$140
656	260

Date Completed 6-3
Manufacturing overhead allocated
Date	Rate		Amount
6–3		of direct
	labor cost
Overall Cost Summary
Direct materials
Direct labor
Manufacturing overhead
Allocated
Total Job Cost
Cost per DVD

Requirement 2. Journalize in summary form the requisition of direct materials and the assignment of direct labor and the allocation of manufacturing overhead to Job 423. Wages are not yet paid. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Start by journalizing the use of direct materials.

Date			Accounts	Debit	Credit
Jun. 3			Work-in-Process Inventory
			Raw Materials inventory

​Next, journalize the use of direct labor.

Date			Accounts	Debit	Credit
Jun. 3

Now journalize the allocation of overhead to Job 423.

Date			Accounts	Debit	Credit
Jun. 3

Requirement 3. Journalize completion of the job and the sale of the 5,800

DVDs on account. ​(Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

Begin by preparing the entry to show the completion of the job.

Date			Accounts	Debit	Credit
Jun. 3

​Next, journalize the revenue portion of the sale of Job 423.

Date			Accounts	Debit	Credit
Jun. 3

​Finally, journalize the cost of goods portion of the sale.

Date			Accounts	Debit	Credit
Jun. 3

and,

Princeton Computer Company uses a job order costing system in which each batch manufactured is a different job. Princeton Computer Company assigns direct materials and direct labor to each job. The company assigns labor costs at $26 per hour. It allocates manufacturing overhead to jobs based on a predetermined overhead allocation​rate, computed as a percentage of direct labor costs. At the beginning of 2020​, the controller prepared the following​budget:

Manufacturing overhead	$180,000
Direct labor costs	$900,000

In November 2020​, PrincetonComputer Company worked on several jobs. Records for two jobs appear​ here:

	Job 721		Job 722
Direct labor hours	790	hours	120	hours
Direct materials	$20,600		$1,900

1.	Compute Princeton Computer​ Company's predetermined overhead allocation rate for 2020.
2.	Compute the total cost of each job.
3.	Why does Princeton assign costs to​ jobs?

Answer 1

a

Job Cost Order
Job No	423
Customer Name	Portrait
Job Description	5,800 DVDs
Date Promised 6-5
	Direct Material
	Requisition
Date	Number	Amount
6-2	63	$372
6-2	64	675
6-3	74	144
Totals		$1,191
Date Started 6-2
Direct Labor
Labor Time
Record
Number	Amount
655	$140
656	260
Totals	$400
Date Completed 6-3
Manufacturing overhead allocated
Date	Rate	Amount
6-3	125% ($550,000/440,000*100) of Direct labor cost	$500 ($400*125%)
Overall Cost Summary
Direct material	$1,191
Direct labor	400
Manufacturing overhead allocated	500
Total Job cost	$2,091
Cost per DVD	$0.36 ($2,091/5,800)

Date	General Journal	Debit	Credit
June 3	Work in process inventory	$1,191
	Raw material inventory		$1,191
June 3	Work in process inventory	$400
	Factory wages		$400
June 3	Work in process inventory	$500
	Manufacturing overhead		$500
June 3	Finished goods inventory	$2,091
	Work in process inventory		$2,091
June 3	Accounts receivable / cash (5,800*$1.2)	$6,960
	Sales		$6,960
June 3	Cost of goods sold	$2,091
	Finished goods inventory		$2,091

b.

1.

Predetermined overhead allocation rate = $180,000 / 900,000*100 = 20% of direct labor cost

2.

	Job 721	Job 722
Direct material cost	$20,600	$1,900
Direct labor cost	20,540 (790*$26)	3,120 (120*$26)
Manufacturing overhead allocated	4,108 (20,540*20%)	624 (3,120*20%)
Total cost	$45,248	$5,644

3.

Princeton assigns costs to each Job to estimate whether price charged for the Jobs can cover up all the cost incurred on such Jobs and also Profits are been earned from each Job.