Question

aw materials purchased on account, $210,000. Raw materials used in production, $190,000 ($178,000 direct materials and $12,000 indirect materials). Accrued direct labor cost of $90,000 and indirect labor cost of $110,000. Depreciation recorded on factory equipment, $40,000. Other manufacturing overhead costs accrued during October, $70,000. The company applies manufacturing overhead cost to production using a predetermined rate of $8 per machine-hour. A total of 30,000 machine-hours were used in October. Jobs costing $520,000 according to their job cost sheets were completed during October and transferred to Finished Goods. Jobs that had cost $480,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 25% above cost. Required: 1. Prepare journal entries to record the transactions given above. 2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $42,000.

Answer 1

Answer:

raw materials   210,000 debit

  account payable     210,000 credit

--to record purchase of raw materials on account--

WIP                                  178,000 debit

Manufacturing overhead 12,000 debit

        Raw materials                       190,000 credit

-- to record use of materials during the period--

WIP                                    90,000 debit

Manufacturing overhead 110,000 debit

        Wages payable                       200,000 credit

-- to record accrued labor during the period--

Manufacturing overhead  40,000 debit

    Accumulated depreciation equipment    40,000 credit

-- to record accrued labor during the period--

Manufacturing overhead 70,000 debit

        Account payable           70,000 credit

--to record other overhead cost accrued--

WIP       240,000 debit

   Manufacturing Overhead 240,000 credit

--to record applied overhead--

Finished Goods    520,000 debit

        WIP                                 520,000 credit

--to record transferred-out goods for the period--

Accounts receivable   600,000 debit

       Sales Revenue                   600,000 credit

--to record sales revenue--

COGS      480,000 debit

    Finished Goods    480,000 credit

--to record cost of goods sold --

  Overhead

Debit       Credit

12,000

110,000

40,000

70,000

                 240,000

232,000   240,000

Balance:       8,000

      WIP

Debit       Credit

 42,000

178,000

 90,000

240,000

               520,000

550,000  520,000

  30,000

Explanation:

For labor and raw materials we will assign the direct cost as part of Work In Process inventory. The indirect part will be post Overhead.

All this actual cost of overhead will be debited. When doing the applied overhead we credited so the difference will tell us the over or underapplied overhead.

Applied overhead calculation:

30,000 machine hours x $8 per hour = $240,000

Then we transfer the finished goods from WIP into finished goods inventory.

The sales price will be 480,000 x (1 + 25% markup) = 600,000

For the T-accounts we will post each value of the WIP and Overhead account. Then add each column and calculate the balance considering the 42,000 beginning inventory