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Marcelino Co.'s March 31 inventory of raw materials is $88,000. Raw materials purchases in April are $570,000, and factory payroll cost in April is $391,000. Overhead costs incurred in April are: indirect materials, $52,000; indirect labor, $29,000; factory rent, $38,000; factory utilities, $19,000; and factory equipment depreciation, $53,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $635,000 cash in April. Costs of the three jobs worked on in April follow.

	Job 306				Job 307				Job 308
Balances on March 31
Direct materials		$	31,000			$	36,000
Direct labor			23,000				15,000
Applied overhead			11,500				7,500
Costs during April
Direct materials			130,000				210,000			$	105,000
Direct labor			103,000				155,000				104,000
Applied overhead			?				?				?
Status on April 30	Finished (sold)				Finished (unsold)					In process

Materials purchases (on credit).

Direct materials used in production.

Direct labor paid and assigned to Work in Process Inventory.

Indirect labor paid and assigned to Factory Overhead.

Overhead costs applied to Work in Process Inventory.

Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in cash.)

Transfer of Jobs 306 and 307 to Finished Goods Inventory.

Cost of goods sold for Job 306.

Revenue from the sale of Job 306.

Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)

2. Prepare journal entries for the month of April to record the above transactions.

	No	Transaction	General Journal	Debit	Credit
1	1	a.	Raw materials inventory
2			Accounts payable
3
4	2	b.	Work in process inventory
5			Raw materials inventory
6
7	3	c.	Work in process inventory
8			Cash
9
10	4	d.	Factory overhead
11			Cash
12
13	5	e.	Work in process inventory
14			Factory overhead
15
16	6	f(1).	Factory overhead
17			Raw materials inventory
18
19	7	f(2).	Factory overhead
20			Cash
21
22	8	f(3).	Factory overhead
23			Accumulated depreciation-factory equipment
24
25	9	f(4).	Factory overhead
26			Cash
27
28	10	g.	Finished goods inventory
29			Work in process inventory
30
31	11	h.	Cost of goods sold
32			Finished goods inventory
33
34	12	i.	Cash
35			Sales
36
37	13	j.	Cost of goods sold
38			Factory overhead

Answer 1

Solution:

Primary working for journal entries

	Job 306	Job 307	Job 308	Total
Balances on March 31
Direct materials	31,000	36,000		67,000
Direct labor	23,000	15,000		38,000
Applied overhead	11,500	7,500		19,000
Costs during April
Direct materials	130,000	210,000	105,000	445,000
Direct labor	103,000	155,000	104,000	362,000
Applied overhead (50% of direct labor cost)	51500	77500	52000	181,000
Total Cost	350000	501000	261000	1,112,000
Status on April 30	Finished (sold)	Finished (unsold)	In process

Journal Entries

No.	Transaction	General Journal	Debit	Credit
1	a.	Raw materials inventory	570000
		Accounts payable		570000
2	b.	Work in process inventory	445000
		Raw materials inventory		445000
3	c.	Work in process inventory	362000
		Cash		362000
4	d.	Factory overhead	29000
		Cash		29000
5	e.	Work in process inventory (Refer working)	181000
		Factory overhead		181000
6	f(1).	Factory overhead	52000
		Raw materials inventory		52000
7	f(2).	Factory overhead	38000
		Cash		38000
8	f(3).	Factory overhead	53000
		Accumulated depreciation-factory equipment		53000
9	f(4).	Factory overhead (utilities)	19000
		Cash		19000
10	g.	Finished goods inventory (350,000 Job 306 + 501,000 Job 307)	851000
		Work in process inventory		851000
11	h.	Cost of goods sold (350,000 Job 306)	350000
		Finished goods inventory		350000
12	i.	Cash	635000
		Sales		635000
13	j.	Cost of goods sold (Refer Note 1)	10000
		Factory overhead		10000

Note 1 --- Calculation of under or over applied overhead

Applied Factory Overhead = $181,000

Actual Overhead Incurred during the April = Indirect materials 52,000 + indirect labor 29,000 + factory rent 38,000 + factory utilities 19,000 + depreciation 53,000

= $191,000

Here, applied overheads are less than actual incurred overhead, it means overheads are under applied by $10,000 (191,000 – 181,000).

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