Question

Powell Company uses a job costing system. During the month of May, Powell spent most of its time on job A50, which was started late in April. Following is cost information for job A50, other May costs, and relevant annual estimates.

Materials issued:
80% for Direct Use on job A50 and 20% for Indirect Use through May	$	6,000
Labor:
Direct Labor for job A50 (300 DLH @ $20 per DLH)		6,000
Indirect Labor for May		310
Other May Costs:
Depreciation (30% Factory and 70% Administrative)		1,000
Other (70% Factory and 30% Administrative)		700
Overhead Cost Driver: Direct Labor Hours (DLH)
Estimated Annual Overhead		21,000
Estimated Annual DLH		3,000
Markup-as a percent of cost		40	%

Required:

(1) Calculate the pre-determined overhead rate and use it to calculate the overhead to be applied for May to job A50?

(2) What are total manufacturing costs for May for job A50?

(3) Prepare the journal entries to record the events that happened in May, assuming that the May 1 work-in-process inventory for job A50 was $600.

(4) Calculate the under- or over-applied overhead for May and prepare a journal entry to close overapplied or underapplied overhead into cost of goods sold on May 31

Answer 1

1	Predetermined overhead Rate	Estimated annual overhead / Estimated Annual DLH
		21000/3000
		$7 per DLH
	Overhead to be applied	2100	(300*7)
2	Total manufacturing costs for A50
	Direct material	4800
	Direct labor	6000
	Overhead assigned	2100
	Total manufacturing costs for A50	12900
Date	Account title and Explanation	Debit	Credit
1	Work in process	4800
	Factory overhead	1200
	Raw material Inventory		6000
	(To record usage of material)
2	Work in process	6000
	Factory overhead	310
	Wages Payable		6310
	(To record usage of labor)
3	Factory overhead	790
	Administrative expenses	910
	Account Payable/Cash		1700
	(To record overhead paid)
4	Work in Process	2100
	Factory overhead		2100
	(To record factory overhead assigned)
	Total overhead Incurred	2300
	Overhead assigned	2100
	Under applied	200
Date	Account title and Explanation	Debit	Credit
	Cost of goods sold	200
	Factory overhead		200
	(To adjust overhead)