Question

Hoover Inc. uses a job-order costing system. The company's inventory balances on February 1, the start of its fiscal year, were as follows:

Raw Materials Inventory	$69,325
Work in Process Inventory	$55,100
Finished Goods Inventory	$81,256

During the year, the following transactions were completed:

Raw materials were purchased on account, $215,221.

Raw materials were issued from the storeroom for use in production, $198,000 (70% direct and 30% indirect).

Employee salaries and wages were accrued as follows: direct labor, $243,300; indirect labor, $98,750; and selling and administrative salaries, $72,340.

Utility costs were incurred in the factory, $79,233.

Advertising costs were incurred, $110,600.

Prepaid insurance expired during the year, $35,000 (80% related to factory operations, and 20% related to selling and administrative activities).

Depreciation was recorded, $192,100 (75% related to factory assets, and 25% related to selling and administrative assets).

Manufacturing overhead was applied to jobs at the rate of 160% of direct labor cost.

Goods that cost $720,200 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.

Sales for the year totaled $1,293,300 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $725,825.

Submit your assignment as an Excel spreadsheet with each tab labeled by item number. Demonstrate the following:

Prepare the journal entries to record the transactions for the year.

Prepare the T-accounts for raw materials inventory, work in process inventory, finished goods inventory, manufacturing overhead, and cost of goods sold. Don't forget to enter the beginning balances in the inventory accounts.

Is manufacturing overhead under-applied or over-applied for the year? Prepare a journal entry to close this balance to cost of goods sold.

Answer 1

A1	B	C	D	E
2	Journal entries will be as follows:
3
4	Journal entry for purchase of raw materials
5	Account	Debit	Credit
6	Raw Materials Inventory	$215,221
7	Account Payable		$215,221
8
9
10	Journal entry for raw material expense:
11	Account and Explanation	Debit	Credit
12	Work in Progress Inventory (70%)	$138,600
13	Manufacturing overhead (30%)	$59,400
14	Raw Materials Inventory		$198,000
15
16
17	Journal entry for Labor costs:
18	Account and Explanation	Debit	Credit
19	Work in Progress Inventory	$243,300
20	Manufacturing overhead	$98,750
21	Selling and Administrative Expenses	$72,340
22	Salaries and Wage Payable		$414,390
23
24
25	Journal entry for Utility Expense:
26	Account and Explanation	Debit	Credit
27	Manufacturing overhead	$79,233
28	Utility Expense		$79,233
29
30	Journal entry for Advertising Expense:
31	Account and Explanation	Debit	Credit
32	Selling and Administrative Expenses	$110,600
33	Advertising Expense		$110,600
34
35
36	Journal entry for Insurance Expense:
37	Account and Explanation	Debit	Credit
38	Manufacturing overhead (80%)	$28,000
39	Selling and Administrative Expenses	$7,000
40	Insurance Expense		$35,000
41
42	Journal entry for Depreciation Expense:
43	Account and Explanation	Debit	Credit
44	Manufacturing overhead (75%)	$26,250
45	Selling and Administrative Expenses	$8,750
46	Depreciation Expense		$35,000
47
48
49	Journal entry to allocate overheads
50	Account and Explanation	Debit	Credit
51	Work in process Inventory	$389,280
52	Manufacturing overhead (160% of direct labor)		$389,280
53
54	Journal entry to transfer goods to finished goods:
55	Account and Explanation	Debit	Credit
56	Finished Goods Inventory	$720,000
57	Work in Progress Inventory		$720,000
58
59
60	Journal Entry for Sale
61	Account and Explanation	Debit	Credit
62	Account Receivables	$1,293,300
63	Sales Revenue		$1,293,300
64
65	Journal entry for cost of goods sold
66	Account and Explanation	Debit	Credit
67	Cost of goods sold	$725,825
68	Finished Goods Inventory		$725,825
69

Formula sheet

A1	B	C	D	E
2	Journal entries will be as follows:
3
4	Journal entry for purchase of raw materials
5	Account	Debit	Credit
6	Raw Materials Inventory	215221
7	Account Payable		=C6
8
9
10	Journal entry for raw material expense:
11	Account and Explanation	Debit	Credit
12	Work in Progress Inventory (70%)	=D14*70%
13	Manufacturing overhead (30%)	=D14-C12
14	Raw Materials Inventory		198000
15
16
17	Journal entry for Labor costs:
18	Account and Explanation	Debit	Credit
19	Work in Progress Inventory	243300
20	Manufacturing overhead	98750
21	Selling and Administrative Expenses	72340
22	Salaries and Wage Payable		=C19+C20+C21
23
24
25	Journal entry for Utility Expense:
26	Account and Explanation	Debit	Credit
27	Manufacturing overhead	=D28
28	Utility Expense		79233
29
30	Journal entry for Advertising Expense:
31	Account and Explanation	Debit	Credit
32	Selling and Administrative Expenses	=D33
33	Advertising Expense		110600
34
35
36	Journal entry for Insurance Expense:
37	Account and Explanation	Debit	Credit
38	Manufacturing overhead (80%)	=D40*80%
39	Selling and Administrative Expenses	=D40-C38
40	Insurance Expense		35000
41
42	Journal entry for Depreciation Expense:
43	Account and Explanation	Debit	Credit
44	Manufacturing overhead (75%)	=D46*75%
45	Selling and Administrative Expenses	=D46-C44
46	Depreciation Expense		35000
47
48
49	Journal entry to allocate overheads
50	Account and Explanation	Debit	Credit
51	Work in process Inventory	=D52+D53
52	Manufacturing overhead (160% of direct labor)		=C19*160%
53
54	Journal entry to transfer goods to finished goods:
55	Account and Explanation	Debit	Credit
56	Finished Goods Inventory	=D57
57	Work in Progress Inventory		720000
58
59
60	Journal Entry for Sale
61	Account and Explanation	Debit	Credit
62	Account Receivables	=D63
63	Sales Revenue		1293300
64
65	Journal entry for cost of goods sold
66	Account and Explanation	Debit	Credit
67	Cost of goods sold	725825
68	Finished Goods Inventory		=C67
69