Question

Dear Experts,

Please teach me how to solve the following exercise.

Problem 17.3A Job Order Costing: A Comprehensive Problem

Georgia Woods,Inc., manufactures furniture to customers' specifications and uses job order costing. A predetermined overhead rateis usedin applying manufacturing overhead to individualjobs.In Department One, overhead is applied on the basis o machine-hours, and in Department Two, on the basis of directlabor hours. Atthe beginning ofthe current year, management made the following budget estimates to assistin determining the overhead application rate.

Department One Department Two  

Directlabor cost $300,000 $225,000
Directlabor hours 20,000 15,000
Manufacturing overhead $420,000 $337,500
Machine-hours 12,000 7,500

Production of a batch of custom furniture ordered by City Furniture Gob no. 58) was started early in the year and completed three weeks later on January 29. The records forthis job show the following costinformation.
Job order: City Furniture (job no. 58)

Department one Depertment two

Direct materials cost $10,100 $ 7,600
Directlabor cost $16,500 $11,100
Directlabor hours 1,100 740
Machine-hours 750 500

Selected additionalinformation for January is as follows

Department one Department two

Directlabor hours-month of January 1,600 1,200
Machine-hours-month of January 1,100 600
Manufacturina overhead incurred in January $39,010 $26,540

Required:
a. Compute the predetermined overhead rate for each department.
b Whatis the total cost ofthe furniture produced for City Furniture?
c. Prepare the entries required to record the sale (on account) of the furniture to City Furniture. The sales price ofthe order was $147,000. Transaction 1 Record from to City Funiture. Transaction 2 Record the cost of goods sold (Job No.58) to City Funiture.
d Determine the over- or underapplied overhead for each department atthe end of January

Answer 1

Answer a:

Predetermined overhead rate for each department:

In Department One, overhead is applied on the basis of machine-hours:

Estimated Manufacturing overhead in department one = $420,000

Machine-hours in department one = 12,000

Overhead rate per machine hour = Manufacturing overhead / Machine-hours = $420,000 / 12,000 = $35

In Department Two, on the basis of direct labor hours:

Estimated Manufacturing overhead in department two = $337,500

Direct labor hours in department two =15,000

Overhead rate per direct labor hour = Manufacturing overhead / direct labor-hours = $337,500 / 15,000 = $22.50

Answer b:

Total cost of the furniture produced for City Furniture:

Answer c:

Journal entries required to record the sale (on account) of the furniture to City Furniture and to record cost of goods sold:

Answer d:

For the month of January :

Over- or under-applied overhead for department one:

Machine-hours for month of January in department one = 1,100

Manufacturing overhead applied = 1,100 * $35 = $38,500

Actual Manufacturing overhead incurred in January in department one = $39,010

As actual overhead is higher than the overhead applied,

Under-applied overhead in department one = $39,010 - $38,500 = $510

Department two:

Direct labor hours-month of January in department two = 1,200

Manufacturing overhead applied in department two = 1,200 * $22.50 = $27,000

Actual Manufacturing overhead incurred in January in department two = $26,540

As actual overhead is less than the applied overhead:

Over-applied manufacturing overhead in department two = $27,000 - $25,540 = $460