The company uses a job-order costing system in which overhead is applied to jobs
ID: 2392800 • Letter: T
Question
The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $330,000 of manufacturing overhead for an estimated activity level of $200,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows Raw materials Work in process Finished goods $25,000 $10,000 $40,000 During the year, the following transactions were completed a. Raw materials purchased for cash, $275,000. b. Raw materials used in production, $280,000 (materials costing $220,000 were charged directly to jobs; the remaining materials were indirect). c. Cash paid to employees as follows $ 180,000 $72,000 $ 63,000 $ 90,000 Direct labor Indirect labor ales commissions Administrative salaries d. Cash paid for rent during the year was $18,000 ($13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities) e. Cash paid for utility costs in the factory, $57,000 f. Cash paid for advertising, $140,000 g. Depreciation recorded on equipment, $100,000. ($88,000 of this amount related to equipment used in factory operations, the remaining $12,000 related to equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, $?_ i. Goods that had cost $675,000 to manufacture according to their job cost sheets were completed j. Sales for the year (all paid in cash) totaled $1,250,000. The total cost to manufacture these goods according to their job cost sheets was $700,000.Explanation / Answer
1.
2.
3A. Manufacturing Overhead is overapplied by $7000
3B. Journal entry :
Manufacturing Overhead A/c dr ...$7000
To Cost of Goods sold A/c
4
Estimated Manufactring Overhead 330000 Direct Labor Dollars 200000 Pre determined overhead rate 1.65 per labor dollar