Question

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Braganza Enterprise uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost.

Braganza’s predetermined overhead application rate for 2019 was computed from the following data:

Total estimated factory overhead $1,256,000 Total estimated direct labour cost $785,000

The following activities took place in the work in process inventory during August:

WIP Inventory A/C August 1 Bal. b/f 51,250 Direct Materials Used 254,800

Other transactions incurred: Indirect material issued to production was $38,000 Total manufacturing labour incurred in August was $345,000, 80% of this amount represented direct labour. Other manufacturing overhead costs incurred for August amounted to $340,750. Two jobs were completed with total costs of $324,000 & $240,000 respectively. They were sold on account at a margin of 40% on sales.

Required:

i) Compute Braganza’s predetermined manufacturing overhead rate for 2019.

Overhead rate =1,256,000/785,000

=$1.6

ii) State the journal entries necessary to record the above transactions in the general journal:

a) For direct materials used in August

Dr. WIP Inventory​​​​254,000

Cr.Material Inventory ​​​ 254,000

b) For indirect material issued to production in August

Dr. MOH ​​38,000

Cr. Materials Inventory ​​38,00

To reflect use of indirect material used

c) For total manufacturing labour incurred in August

Dr. Manufacturing Wages ​​345,000

Cr. Wages Payable 345,000

d) To assign manufacturing labour to the appropriate accounts

Dr. WIP 345,000

Cr. MOH 69,000

Cr. Manufacturing Wages 276,000

e) For other manufacturing overhead incurred

Dr. MOH 340,000

Cr. Various accounts/factore insurance/Taxes 340,000

f) For manufacturing overhead applied for August

g) To move the completed jobs into finished goods inventory

Dr. Finished Goods ​ 564,000

Cr. WIP 564,000

h) To sell the two completed jobs on account

Dr. COGS​​564,000

Cr. Finished Goods Job 1 324,000

Finished Goods Job 2 240,000

Dr. Accounts Receivable 453,000

Cr.

iii) Calculate the manufacturing overhead variance for Braganza and state the journal entries necessary to dispose of the variance. iv) What is balance on the Cost of Goods Sold account after the adjustment v) Calculate the gross profit earned by Braganza. vi) Determine the balance in work in process inventory on August 31.

Answer 1

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Braganza Enterprise
i) Compute Braganza’s predetermined manufacturing overhead rate for 2019.
Overhead rate =1,256,000/785,000
Overhead rate = $1.6
Ans ii.	Journal Entries
Date	Account	Debit	Credit
a.	For direct materials used in August
	WIP Inventory	254,800.00
	Material Inventory		254,800.00
b.	For indirect material issued to production in August
	Manufacturing Overhead	38,000.00
	Material Inventory		38,000.00
c.	For total manufacturing labor incurred in August
	Manufacturing Wages	345,000.00
	Wages Payable		345,000.00
d.	To assign manufacturing labor to the appropriate accounts
	WIP Inventory	276,000.00		80% of $ 345,000.
	Manufacturing Overhead	69,000.00		20% of $ 345,000.
	Manufacturing Wages		345,000.00
	For other manufacturing overhead incurred
e.	Manufacturing Overhead	340,750.00
	Cash		340,750.00
f.	For manufacturing overhead applied for August
	WIP Inventory	441,600.00		1.6 * Direct labor cost that is $ 276,000 as shown in entry d.
	Manufacturing Overhead		441,600.00
g.	To move the completed jobs into finished goods inventory
	Finished Goods Inventory	564,000.00		This is sum total of jobs were completed with total costs of $324,000 & $240,000
	WIP Inventory		564,000.00
h.	To sell the two completed jobs on account
	Cost of goods sold	564,000.00
	Finished Goods Inventory		564,000.00
h.	To sell the two completed jobs on account
	Accounts Receivable	789,600.00		140% of $ 564,00 as shown in entry g.
	Sales		789,600.00

Ans iii.	Manufacturing Overhead account
	Material Inventory	38,000.00
	Manufacturing Wages	69,000.00
	Other manufacturing overhead	340,750.00
	Manufacturing Overhead incurred	447,750.00
	Manufacturing Overhead applied	441,600.00
	Under applied	6,150.00
	This is to be adjusted to costs of good sold
	Journal Entry	Debit $	Credit $
	Costs of good sold	6,150.00
	Manufacturing Overhead		6,150.00

Ans iv.	Cost of goods sold
	Finished Goods Inventory	564,000.00
	Manufacturing Overhead under applied	6,150.00
	Balance after the adjustment	570,150.00
Ans v	Gross profit earned
	Sales	789,600.00
	Less: Cost of goods sold	570,150.00
	Gross profit earned	219,450.00

Ans vi	The balance in work in process inventory on August 31
	Direct materials	254,800.00
	Direct Labor	276,000.00
	Manufacturing Overhead applied	441,600.00
	Total	972,400.00
	Less: transferred to Finished goods	564,000.00
	Balance in WIP inventory on Aug 31	408,400.00