Question

Basic Job Costing Project

Reed Incorporated uses a job-order costing system and a predetermined overhead rate based on machine hours.

At the beginning of the year, the company estimated manufacturing overhead for the year would be $240,000 and machine hours would be 8,000.

The following information pertains to December of the current year:

	Job 10	Job 11	Job 12	Total
Work-in-process, Dec. 1	$16,000	$26,000	$38,000	$80,000

The following transactions took place during the month of December:

1. Purchased raw materials for $25,000 on credit;

2. Requisitioned and used direct materials for the three jobs:

a. $4,000 for Job 10

b. $4,800 for Job 11

c. $7,200 for Job 12

3. Used indirect materials worth $20,000

4. . Incurred direct labor costs as follows:

a. $ 2,400 for Job 10

b. $3,600 for Job 11

c. $4,000 for Job 12

5. Incurred $30,000 worth of indirect manufacturing labor costs.

6. Depreciation on manufacturing plant and equipment $21,000.

7. During the month of December, the company used the following direct labor hours and machine hours for the three jobs:

		Job 10	Job 11	Job 12	Total
	Machine hours	400	700	900	2,000
	Labor hours	120	180	200	500

Required:

1. Compute the predetermined overhead application rate.

2. Prepare the journal entries for the transactions that took place in December and apply manufacturing overhead to the jobs using the actual machine hours. 3. Determine the total cost associated with each job. 4. If jobs 10 and 12 were completed, prepared the journal entry to move jobs 10 and 12 to finished goods. 5. Delivered job 10 to customers that paid $40,000 cash; prepare the journal entries to sell job 10 and to recognize the associated cost of goods sold. 6. What is the cost assigned to ending work in process (control account)? 7. What is the cost assigned to ending finished goods (control account)? 8. How much was manufacturing overhead over/underapplied?

Answer 1

	Req 1:
	Estimated overheeads			240000
	Divide: Estimated machine hour			8000
	OH rate per MH			30
	Req 2:
	Journal entries
	Accounts title and explanations					Debit $	Credit $
1	Raw material Inventory Account Ddr.					25000
	Accounts payable						25000
2	Work in process Inventory Account Dr.					16000
	Raw material Invventory						16000
3	Manufacturing OH Account Dr.					20000
	Raw material Inventory						20000
4	Work in process Inventory Dr.					10000
	Wages payable						10000
5	Manufacturing OH Account Dr.					30000
	Wwages payable						30000
6	Manufacturing OH Account Dr.					21000
	Accumulated dep						21000
7	Work in process Inventory Account					60000
	Manufacturing OH account (2000 Mh @ 30)						60000
	Req 3:
	Total cost
				Job 10	Job 11	Job 12
	Begininng Balance			16000	26000	38000
	Add: Current cost
	Material			4000	4800	7200
	Labour			2400	3600	4000
	Oh applied			12000	21000	27000
	Total cost			34400	55400	76200
	Req 4:
	Finished Goods inventory Account Dr. (34400+55400)					89800
	Work in process inventory Account						89800
	Req 5:
	Cash Account Dr.			40000
	sales revenue				40000
	Cost of Goods sold Account Dr.			34400
	Finished Goods inventory				34400
	Req 6:
	Ending WORK in process (Job 12): $ 76200
	Rreq 7:
	Cost of Finished Goods inventory (Job 11): $ 55400
	Req 8:
	Actual OH incurred (20000+30000+21000)				71000
	Less: Actual OH applied (2000 Mh @ 30)				60000
	Under-applied OH				11000