Chapter 15: Q1DQ (page 694)
Question: Why must a company estimate the amount of factory overhead assigned to individual jobs or job lots?
Answer
Estimating the relation between factory overhead cost and job or job lot is necessary to assign costs.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
At the beginning of a year, a company predicts total direct materials costs of \(900,000 and total overhead costs of \)1,170,000. If the company uses direct materials costs as its activity base to apply overhead, what is the predetermined overhead rate it should use during the year?
Perez Mfg.’s August 31 inventory of raw materials is \(150,000. Raw materials purchases in September are \)400,000, and factory payroll cost in September is \(232,000. Overhead costs incurred in September are: indirect materials, \)30,000; indirect labor, \(14,000; factory rent, \)20,000; factory utilities, \(12,000; and factory equipment depreciation, \)30,000. The predetermined overhead rate is 50% of direct labor cost. Job 114 is sold for \(380,000 cash in September. Costs for the three jobs worked on in September follow.
Balances on August 31
Direct materials . . . . . . . . . . . . . . . . . \) 14,000 \( 18,000
Direct labor . . . . . . . . . . . . . . . . . . . . 18,000 16,000
Applied overhead . . . . . . . . . . . . . . . 9,000 8,000
Costs during September
Direct materials . . . . . . . . . . . . . . . . . 100,000 170,000 \) 80,000
Direct labor . . . . . . . . . . . . . . . . . . . . 30,000 68,000 120,000
Applied overhead . . . . . . . . . . . . . . . ? ? ?
Status on September 30 . . . . . . . . . . . Finished (sold) Finished (unsold) In process
Required
1. Determine the total of each production cost incurred for September (direct labor, direct materials, and applied overhead) and the total cost assigned to each job (including the balances from August 31).
2. Prepare journal entries for the month of September to record the following.
a. Materials purchases (on credit).
b. Direct materials used in production. c. Direct labor paid and assigned to Work in Process Inventory.
d. Indirect labor paid and assigned to Factory Overhead. e. Overhead costs applied to Work in Process Inventory.
f. Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in cash.)
g. Transfer of Jobs 114 and 115 to the Finished Goods Inventory. h. Cost of Job 114 in the Cost of Goods Sold account.
i. Revenue from the sale of Job 114.
j. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)
3. Prepare a schedule of cost of goods manufactured.
4. Compute gross profit for September. Show how to present the inventories on the September 30 balance sheet. Analysis Component
5. The over- or underapplied overhead adjustment is closed to Cost of Goods Sold. Discuss how this adjustment impacts business decision making regarding individual jobs or batches of jobs.
During the current month, a company that uses job order costing incurred a monthly factory payroll of \(180,000. Of this amount, \)40,000 is classified as indirect labor and the remainder as direct. Prepare journal entries to record these transactions.
What events cause debits to be recorded in the Factory Overhead account? What events cause credits to be recorded in the Factory Overhead account?
A company’s Factory Overhead account shows total debits of \(624,000 and total credits of \)646,000 at the end of the year. Prepare the journal entry to close the balance in the Factory Overhead account to Cost of Goods Sold.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
