Question

Question 3

Bergamo Bay Co. uses enterprise resource planning (ERP) system to combine the business activities with accounting activities. ERP system provides an integrated and continuously updated view of core business processes. The system can track business resources, i.e. cash, raw materials, etc., and shares data across various departments (manufacturing, purchasing, sales, accounting, etc.), and various stakeholders of the company. The system also can provide timely information and report to variable users within the company. On December 31, 2019 ERP system generated the following trial balance. The company’s manager knows something is wrong with the trial balance because it does not show any balance for Work in Process Inventory but does show a balance for the Factory Payroll and Factory Overhead account.

Debit Credit

Cash $ 57,600

Accounts receivable 50,400

Raw materials inventory 31,200

Work in process inventory 0

Finished goods inventory 10,800

Prepaid rent 3,600

Accounts payable $ 12,600

Notes payable 16,200

Common stock 36,000

Retained earnings 104,400

Sales 216,000

Cost of goods sold

Factory payroll 126,000

19,200

Factory overhead 32,400

Operating expenses 54,000

Totals $ 385,200 $ 385,200

After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.

Materials requisition 21-3010: $ 5,520 direct materials to Job 402

Materials requisition 21-3011: $ 9,120 direct materials to Job 404

Materials requisition 21-3012: $ 2,520 indirect materials

Labor time ticket 6052: $ 6,000 direct labor to Job 402

Labor time ticket 6053: $ 9,600 direct labor to Job 404

Labor time ticket 6054: $ 3,600 indirect labor

Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 200% of direct labor cost.

Required:

(1) Prepare journal entries to assign the costs below:

(a) Direct materials costs to Work in Process Inventory.

(b) Direct labor costs to Work in Process Inventory.

(c) Overhead costs to Work in Process Inventory.

(d) Indirect materials costs to the Factory Overhead account.

(e) Indirect labor costs to the Factory Overhead account.

(2) According the entries from part (1) related to factory overhead, determine the amount of under- or overapplied overhead for the year.

(3) Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold, assuming the amount is not material.

Answer 1

1	Ref.	General journal					Debit	Credit
	a.	Work in process inventory			(5520+9120)		14640
		Raw materials inventory						14640
		(Direct materials costs to WIP Inventory)
	b.	Work in process inventory			(6000+9600)		15600
		Factory payroll						15600
		(Direct labor costs to WIP Inventory)
	c.	Work in process inventory			(15600*200%)		31200
		Factory overhead						31200
		(Overhead costs to WIP Inventory)
	d.	Factory overhead					2520
		Raw materials inventory						2520
		(Indirect materials costs to the Factory Overhead )
	e.	Factory overhead					3600
		Factory payroll						3600
		(Indirect labor costs to the Factory Overhead )
2	Actual factory overhead incurred:
			$
	Balance		32400
	Indirect materials		2520
	Indirect labor		3600
	Total		38520
	Factory overhead applied=$ 31200
	Factory overhead applied < Actual FOH
	Hence, overhead is under-applied
	Under-applied overhead=38520-31200=$ 7320
3	Journal entry:
	Account titles				Debit	Credit
	Cost of goods sold				7320
	Factory overhead					7320