Question

Birmingham Bowling Ball Company (BBBC) uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20x3, consisted of one job (no. 3088), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.

BBBC applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company’s practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x4 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000 respectively. Actual results for the year follow.

Direct material used..................	$	5,500,000
Direct labor......................		4,350,000
Indirect material used.................		63,000
Indirect labor.....................		2,860,000
Factory depreciation....................		1,740,000
Factory insurance.....................		59,000
Factory utilities....................		832,000
Selling and administrative expenses		2,160,000
Total	$	17,564,000

Job no. 3088 was completed in January 20x4; there was no work in process at year-end. All jobs produced during 20x4 were sold with the exception of job no. 3154, which contained direct-material costs of $155,000 and direct-labor charges of $85,000. BBBC charges any under- or overapplied overhead to Cost of Goods Sold. 4. Prepare the journal entry needed to record the year’s completed production. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 5-a. Compute the amount of under- or overapplied overhead at year-end. 5-b. Prepare the necessary journal entry to record its disposition. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Determine BBBC’s 20x4 cost of goods sold. Finished Goods Jan 1 ? ? Cost of Goods Available for Sale ? ? Unadjusted Cost of Goods Sold ? ? Cost of Goods Sold

Answer 1

Solution 4:

Predetermined overhead rate = Budgeted overhead /Budgeted direct labor cost = $5,460,000 / $4,200,000 = 130% of direct labor cost

Schedule of cost of completed production - Birmingham Bowling Ball Company
Particulars		Amount
Direct materials		$5,500,000.00
Direct labor		$4,350,000.00
Manufacturing overhead Applied (130% of DL Cost)		$5,655,000.00
Manufacturing cost incurred during period		$15,505,000.00
Add: Beginning WIP		$156,800.00
Less: Ending WIP		$0.00
Cost of goods manufactured		$15,661,800.00

Journal Entries - BBBC
Event	Particulars	Debit	Credit
1	Finished goods inventory Dr	$15,661,800.00
	To Work In Process Inventory		$15,661,800.00
	(To record cost of year completed production)

Solution 5a:

Actual overhead incurred = Indirect material +Indirect labor + Factory depreciation + Factory insurance + Factory utilities

= $63,000 + $2,860,000 + $1,740,000 + $59,000 + $832,000

= $5,554,000

Manufacturing overhead applied = $5,655,000

Overapplied overhead = $5,655,000 - $5,554,000 = $101,000

Schedule of cost of goods sold - BBBC
Particulars	Amount
Beginning finished goods inventory	$0.00
Add: Cost of goods manufactured	$15,661,800.00
Cost of goods available for sale	$15,661,800.00
Less: Ending finished goods inventory ($155,000 + $85,000 + $85,000*130%)	$350,500.00
Unadjusted Cost of goods sold	$15,311,300.00
Less: Overapplied overhead	$101,000.00
Adjusted cost of goods sold	$15,210,300.00