Question

Purple Paisley Company is a sweater manufacturing firm that uses job-order costing. At the beginning of the month, the company’s inventory balances were as follows:

Raw materials………….. $50,000

Work in process………... $20,000

Finished goods…………. $10,000

The company applies overhead to jobs using a predetermined overhead rate based on direct labor hours. At the beginning of the year, the company estimated that it would work 5,000 direct labor hours and incur $80,000 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased on account for $150,000.
• During the month $140,000 of raw materials were requisitioned for use in production, of which $135,000 were directly traced to particular jobs in the factory and the remainder was indirect materials.
• Employee costs were incurred:
  • direct labor, $60,000 at an average of $15 per hour (for 4,000 direct labor hours)
  • indirect factory labor, $18,000
  • selling, general and administrative salaries, $50,000
• Advertising costs of $125,000 were incurred.
• Utility costs and property taxes of $25,000 were incurred (accrued) for the factory and $14,000 were incurred for the headquarters building.
• Depreciation for the month was $40,000 of which $12,000 is related to the factory building and equipment while the remaining and $28,000 is related to the headquarters office building.
• Manufacturing overhead was applied to jobs.
• Several batches of goods costing of $255,000 based upon the completed job cost sheets were completed and moved to the delivery area.
• Sweaters with a cost of $230,000 were sold on account for 200% of cost.
• The over or under applied overhead journal entry must be made. (Be sure to indicate if overhead is over or under applied.)

Use the information above to answer the following questions in good form. When preparing journal entries, it may be difficulty to get them to line up properly...therefore, indicate which is your debit and which is your credit.

1. What is the predetermined overhead rate? Be sure to state it properly.

2. Indicate the Debits and Credits for the following: Raw materials were purchased on account for $150,000.

3. Indicate the Debits and Credits for the following: During the month $140,000 of raw materials were requisitioned for use in production, of which $135,000 were directly traced to particular jobs in the factory and the remainder was indirect materials.

4. Indicate the Debits and Credits for the following: Employee costs were incurred:

• direct labor, $60,000 at an average of $15 per hour (for 4,000 direct labor hours)
• indirect factory labor, $18,000
• administrative salaries, $50,000

5. Indicate the Debits and Credits for the following: Advertising costs of $125,000 were incurred.

6. Indicate the Debits and Credits for the following: Utility costs and property taxes of $25,000 were incurred (accrued) for the factory and $14,000 were incurred for the headquarters building.

7. Indicate the Debits and Credits for the following: Depreciation for the month was $40,000 of which $12,000 is related to the factory building and equipment while the remaining and $28,000 is related to the headquarters office building.

8. Indicate the Debits and Credits for the following: Manufacturing overhead was applied to jobs.

9. Indicate the Debits and Credits for the following: Several batches of goods costing of $255,000 based upon the completed job cost sheets were completed and moved to the delivery area.

10. Indicate the Debits and Credits for the following: Sweaters with a cost of $230,000 were sold on account for 200% of cost. (you may list the entries as two separate journal entries, or you may combine them into one entry)

11. Indicate the Debit and Credit for the following: The over or under applied overhead journal entry must be made. (Be sure to indicate if overhead is over or under applied and by how much.)

For partial credit on the questions above, you may submit your entries via excel to this question.

Answer 1