Question

Widmer Watercraft’s predetermined overhead rate for 2017 is 200% of direct labor. Information on the company’s production activities during May 2017 follows.

a. Purchased raw materials on credit, \(200,000.

b. Materials requisitions record use of the following materials for the month.

Job 136 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)  48,000

Job 137 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000

Job 138 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,200

Job 139 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,400

Job 140 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,400

Total direct materials . . . . . . . . . . . . . . . . . . . . . . . . . 128,000

Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,500

Total materials used . . . . . . . . . . . . . . . . . . . . . . . . . \(147,500

c. Paid \)15,000 cash to a computer consultant to reprogram factory equipment.

d. Time tickets record use of the following labor for the month. These wages were paid in cash

Job 136 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(  12,000

Job 137 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,500

Job 138 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,500

Job 139 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,000

Job 140 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000

Total direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,000

Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)126,000

e. Applied overhead to Jobs 136, 138, and 139.

f. Transferred Jobs 136, 138, and 139 to Finished Goods.

g. Sold Jobs 136 and 138 on credit at a total price of \(525,000.

h. The company incurred the following overhead costs during the month (credit Prepaid Insurance for expired factory insurance).

Depreciation of factory building . . . . . . . . . . . . . . . . \)68,000

Depreciation of factory equipment . . . . . . . . . . . . . 36,500

Expired factory insurance . . . . . . . . . . . . . . . . . . . . . 10,000

Accrued property taxes payable . . . . . . . . . . . . . . . . 35,000

1. Applied overhead at month-end to the Work in Process Inventory account (Jobs 137 and 140) using the predetermined overhead rate of 200% of direct labor cost.

Required

1. Prepare a job cost sheet for each job worked on during the month. Use the following simplified form.

Job No. __________

Materials . . . . . . . . . . \(

Labor . . . . . . . . . . . . .

Overhead . . . . . . . . . .

Total cost . . . . . . . . . \)

2. Prepare journal entries to record the events and transactions a through i.

3. Set up T-accounts for each of the following general ledger accounts, each of which started the month with a zero balance: Raw Materials Inventory; Work in Process Inventory; Finished Goods Inventory; Factory Overhead; Cost of Goods Sold. Then post the journal entries to these T-accounts and determine the balance of each account.

4. Prepare a report showing the total cost of each job in process and prove that the sum of their costs equals the Work in Process Inventory account balance. Prepare similar reports for Finished Goods Inventory and Cost of Goods Sold.

Short answer

All the requirements of the question are answered in step 1 to step 4 of the solution

Step-by-step solution

Preparation of job cost sheet

	Job 136	Job 137	Job 138	Job 139	Job 140	Total
Materials	48,000	32,000	19,200	22,400	6,400	128,000
Labor	12,000	10,500	37,500	39,000	3,000	102,000
Overhead	24,000	21,000	75,000	78,000	6,000	204,000
Total	84,000	63,500	131,700	139,400	15,400	434,000

Journal entries

Date	Particulars	Debit ($)	Credit ($)
a	Raw Materials	200,000
	Accounts Payable		200,000
b	In process Inventory	128,000
	Manufacturing Overhead	19,500
	Raw Materials		147,500
c	Manufacturing Overhead	15,000
	Cash		15,000
d	In Process Inventory	102,000
	Manufacturing Overhead	24,000
	Raw Materials Inventory		126,000
e	In Process Inventory	177,000
	Manufacturing Overhead		177,000
	(24,000+75,000+78,000)
f	Finished Goods Inventory	355,100
	In Process Inventory		355,100
	(84,000 + 131,700 + 139,400)
g	Receivables	525,000
	Sales		525,000
	Cost of goods sold (84,000+131,700)	215,700
	Finished Goods Inventory		215,700
h	Manufacturing Overhead	149,500
	Accumulated depreciation- Factory Building		68,000
	Accumulated depreciation- Factory Equipment		36,500
	Prepaid Insurance		10,000
	Property taxes payable		35,000
I	In Process Inventory (21,000 + 6,000)	27,000
	Manufacturing Overhead		27,000

Preparation of T-Accounts

Raw Material Inventory
A 200,000
	146,500 B

Ending balance 53,500

Work in Process Inventory
B 128,000
D 102,000	355,100 F
E 177,000
I 27,000
Ending Balance 78,900

Factory Overhead
B 19,500
C 15,000
D 24,000
	177,000 E
H 149,500
	27,000 I
Ending Balance 4,000

Finished Goods Inventory
F 355,100
	215,700 G
Ending Balance 139,400

Cost of goods sold
G 215,700
Ending Balance 215,700

Preparation of report job costs

	Amount ($)
Work in process Inventory
Job 137	63,500
Job 140	15,400
Balance	78,900
Finished Goods Inventory
Job 139	139,400
Balance	139,400

Cost of goods sold
Job 136	84,000
Job 138	131,700
Balance	215,700