Question

2) Allenton Company is a manufacturing firm that uses job-order costing. At the beginning of the year, the company's inventory balances were as follows:

Raw materials: $26,000

Work in process $47,000

Finished goods $133,000

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 31,000 machine-hours and incur $248,000 in manufacturing overhead cost. The following transactions were recorded for the year:

a. Raw materials were purchased, $421,000.
b. Raw materials were requisitioned for use in production, $408,000 ($387,000 direct and $21,000 indirect).
c. The following employee costs were incurred: direct labor, $145,000; indirect labor, $61,000; and administrative salaries, $190,000.
d. Selling costs, $138,000.
e. Factory utility costs, $14,000.
f. Depreciation for the year was $121,000 of which $114,000 is related to factory operations and $7,000 is related to selling, general, and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 29,000 machine-hours.
h. The cost of goods manufactured for the year was $783,000.
i. Sales for the year totaled $1,107,000 and the costs on the job cost sheets of the goods that were sold totaled $768,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.

Required:

Complete the following T-accounts (or journal entries) by recording the beginning balances and each of the transactions listed above. Assume all transactions are conducted with cash.

Answer 1

1	a.	Raw Materials	421,000
		Cash		421,000
	b.	Work in Process	387,000
		Manufacturing Overhead	21,000
		Raw Materials		408,000
	c.	Work in Process	145,000
		Manufacturing Overhead	61,000
		Salaries Expense	190,000
		Cash		396,000
	d.	Selling expense	138,000
		Cash		138,000
	e.	Manufacturing Overhead	14,000
		Cash		14,000
	f.	Manufacturing Overhead	114,000
		Depreciation Expense	7,000
		Accumulated Depreciation		121,000
	g.	Work in Process	232,000
		Manufacturing Overhead		232,000
	Predetermined Overhead Cost = Estimated total manufacturing overhead cost/Estimated total amount of the allocation base
		248000 / 31000 = $8 per Mh
		29000 actual MH × $ 8 per MH = $ 232,000.
	h.	Finished Goods	783,000
		Work in Process		783,000
	i.	Cash	1,107,000
		Sales		1,107,000
		Cost of Goods Sold	768,000
		Finished Goods		768,000
	j.	Manufacturing Overhead	22,000
		Cost of Goods Sold		22,000
		Overapplied overhead:
		210,000 incurred – 232,000 applied = 22,000 overapplied
Note: question has not specified T-Accounts so, I have provided Journal entry since it is optional to provide
T-Accounts.