Question

Kim’s Asphalt does driveway and parking lot resurfacing work for large commercial clients as well as small residential clients. An inventory of raw materials is on hand at all times so that work can start as quickly as possible. On May 1, the Raw Materials inventory account had a balance of $24,000. As of May 1, the Work In Process (WIP) inventory account had two jobs not yet complete with the following costs:

	Job 27 Highlands Mall	Job 33 Pine Ridge Estates
Direct Materials	$10,250	$35,000
Direct Labor	9,000	17,500
MOH (allocated)	2,700	5,250

Overhead is allocated at the rate of 30% of direct labor costs. MOH is allocated at the end of the month for incomplete jobs, and again when a job is completed.

May Events:

1. During May, Kim’s Asphalt started two new jobs. Additional work was done on Jobs 27 and 33. Details on the costs incurred on jobs during May follow:

	Job 27 Highlands Mall	Job 33 Pine Ridge Estates	Job 34 Studio C Cinema	Job 35 Jones Residence
Direct Materials	$2,000	$3,200	$4,600	$2,000
Direct Labor (paid in cash)	3,000	4,500	5,900	1,600

2. Received $12,500 payment on Job 24 delivered to customer in April.
3. Purchased raw materials for $9,400 on account.
4. Job 33 was completed and MOH was allocated.
5. Billed Pine Ridge Estates in the amount of $87,500 for the completion of Job 33; received payment for $50,000 of that amount. The cost of Job 33 is charged to Cost of Installations Completed and Sold (CICS) account. (Record revenues and costs in separate journal entries.)
6. Determined that payroll for indirect labor personnel totaled $650. Checks for payroll distributed to employees.
7. Used $155 of supplies and incidental materials from raw materials inventory for various jobs throughout the month.
8. Recorded other costs for the production operation as follows (all cash except equipment depreciation):

Property taxes	$550
Storage area rental	675
Truck and supplies delivery cost	320
Inspections	200
Utilities	325
Equipment depreciation (repair equipment)	450

9. Paid $600 cash for advertising and promotion campaign.
10. Allocated overhead for incomplete jobs remaining in WIP at the end of the month.

Required:

1. Prepare journal entries to record the flow of costs for operations during May as reflected in 1-10 above. Use only “control” accounts (Ignore subsidiary accounts). Group transactions into one journal entry where feasible (e.g., record all uses of direct DM in one journal entry).
   
2. Compute the amount of under- or over-applied MOH for the month of May.
   
3. Determine the ending balances of all inventory accounts (prior to MOH closing entry in question 4 below).
   
4. Prepare the journal entry to close out the MOH account assuming under- or overallocated overhead is:
   1. charged to CICS
   2. prorated based on the ending balances of the relevant accounts
      

Answer 1

kim’s asphalt does driveway and parking lot resurfacing...
	Job 27$	Job 33$	Total
Direct Material$	10,250	35,000	45,250
Direct Labour	9,000	17,500	26,500
MOH ( allocated)	2,700	5,250	7,950
As per question - OH calculated on 30% * Direct Labour cost
May Events
	Job 27$	Job 33$	Job 34$	Job 35$
Direct Material$	2,000	3,200	4,600	2,000
Direct Labourpaid in Cash)	3,000	4,500	5,900	1,600
Details		Debit($)	credit($)
cash		12,500
Account Receivable			12,500
Material ( Inventory)		9,400
Account Payable			9,400
Account Receivable		87,500
Sales			87,500
Cash		50,000
Account Receivable			50,000
Manufature OH ( Labour)		650
Wages payable			650
Manufature OH		155
Material ( Inventory)			155
Manufature OH		3,120
Property Tax	550
Storage Rental Area	675
Truck and Supplies delivery cost	320
Equiment Depreciation	450
Advertising & promotion	600
Inspection	200
Utilities	325
Cash			2,670
Accumulated depreciation			450
Overhead - Under / Over	Job 27$	Job 33$	Job 34$	Job 35$	Total$
Direct labour	3,000	4,500	5,900	1,600	15,000
MOH @ 30% on DLH					4,500	A
Actual Manufacture OH	Amnt$
Manufature OH	3,120
Wages payable	650
Material ( Inventory)	155
Actual Manufacture OH	3,925	B
Over applied(A-B) $	575
Job 33 Cost of goods sold
Direct Material$	35,000
Direct Labour	17,500
MOH ( allocated)	5,250
Total	57,750
Direct Material$- may Event	3,200
Direct Labour	4,500
MOH ( allocated)-30% of DL	1,350
Total cost of goods sold	66,800
Details		Debit($)	credit($)
Cost of goods Sold		66,800
Work in process - Job 33			66,800
Work in process - Job 27		2,000
Work in process - Job 33		3,200
Work in process - Job 34		4,600
Work in process - Job 35		2,000
Material ( Inventory)			11,800

	Material Inventory
Details	Debit($)	Details	Credit($)
Opening bal	24,000	Manufature OH	155
Account Payable	9,400	Direct Material Issue	11,800
		Closing bal	21,445
Total	33,400	Total	33,400
	Work In process
Details	Debit($)	Details	Credit($)
Direct Material$	45,250	Cost of goods Sold	66,800
Direct Labour	26,500	Closing bal	44,200
MOH ( allocated)	7,950
( J0b 27 &33)
Material Inventory	11,800
Direct Labour cost	15,000
MOH ( allocated)	4,500
Total	1,11,000	Total	1,11,000