Question

Starr Mfg.’s predetermined overhead rate is 200% of direct labor. Information on the company’s production activities during September 2017 follows.

a. Purchased raw materials on credit, \(125,000.

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

Job 487 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)30,000

Job 488 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Job 489 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Job 490 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000

Job 491 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

Total direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Total materials used . . . . . . . . . . . . . . . . . . . . . . . . . . \(92,000

c. Paid \)11,000 cash for miscellaneous factory overhead costs.

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

Job 487 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(  8,000

Job 488 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000

Job 489 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000

Job 490 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Job 491 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Total direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,000

Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)84,000

e. Applied overhead to Jobs 487, 489, and 490.

f. Transferred Jobs 487, 489, and 490 to Finished Goods.

g. Sold Jobs 487 and 489 on credit for a total price of \(340,000.

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

Depreciation of factory building . . . . . . . . . . . . . . . . . . \)37,000

Depreciation of factory equipment . . . . . . . . . . . . . . . . 21,000

Expired factory insurance . . . . . . . . . . . . . . . . . . . . . . . 7,000

Accrued property taxes payable . . . . . . . . . . . . . . . . . . 31,000

1. Applied overhead at month-end to the Work in Process Inventory account (Jobs 488 and 491) using the predetermined overhead rate of 200% of direct labor cost.

Required

1. Prepare a job cost sheet for each job worked on in 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 487	Job 488	Job 489	Job 490	Job 491	Total
Materials	30,000	20,000	12,000	14,000	4,000	80,000
Labor	8,000	7,000	25,000	26,000	2,000	68,000
Overhead	16,000	14,000	50,000	52,000	4,000	136,000
Total	54,000	41,000	87,000	92,000	10,000	284,000

Journal entries

Date	Particulars	Debit ($)	Credit ($)
a	Raw Materials	125,000
	Accounts Payable		125,000
b	In process Inventory	80,000
	Manufacturing Overhead	12,000
	Raw Materials		92,000
c	Manufacturing Overhead	11,000
	Cash		11,000
d	In Process Inventory	68,000
	Manufacturing Overhead	16,000
	Raw Materials Inventory		84,000
e	In Process Inventory	118,000
	Manufacturing Overhead		118,000
	(16,000+50,000+52,000)
f	Finished Goods Inventory	233,000
	In Process Inventory		233,000
	(54,000 + 87,000 + 92,000)
g	Receivables	340,000
	Sales		340,000
	Cost of goods sold (54,000+87,000)	141,000
	Finished Goods Inventory		141,000
h	Manufacturing Overhead	96,000
	Accumulated depreciation- Factory Building		37,000
	Accumulated depreciation- Factory Equipment		21,000
	Prepaid Insurance		7,000
	Property taxes payable		31,000
I	In Process Inventory (14,000 + 4,000)	18,000
	Manufacturing Overhead		18,000

 Step 3 Preparation of T-Accounts

Raw Material Inventory
A 125,000
	92,000 B
Ending balance 33,000

Work in Process Inventory
B 80,000
D 68,000	233,000 F
E 118,000
I 18,000
Ending Balance 51,00

Factory Overhead
B 12,000
C 11,000
D 16,000
	118,000 E
H 96,000
	18,000 I
	1,000 Ending balance

Finished Goods Inventory
F 233,000
	141,000 G
Ending Balance 92,000

Cost of goods sold
G 141,000
Ending Balance 141,000

Preparation of report job costs

	Amount ($)
Work in process Inventory
Job 488	41,000
Job 491	10,000
Balance	51,000
Finished Goods Inventory
Job 490	92,000
Balance	92,000
Cost of goods sold
Job 487	54,000
Job 489	87,000
Balance	141,000