Question

For Box Inc.'s first month of operations, materials and labor costs charged to the three jobs worked on in February were: Job No.101 Job No.102 Job No. 103 Direct materials 3000 4500 1800 Direct labor at $8 per hour 3200 2400 2000 Overhead is applied at the rate of $6 per direct labor-hour. Job no. 101 and 102 were completed, Job No. 101 was sold, Job No.103 remained incomplete at the end of the month. Box Inc. incurred these cost during the month: Direct material purchases 25000 Direct and Indirect factory labor costs 8500 Factory overhead excluding indirect labor 5000 Required: 1. Determine the February 28 balances in each of the three inventory accounts. 2. Compute the amount of over- or underapplied overhead. 3. Prepare the entry to dispose of the over- or underapplied overhead, treating the entire amount as a period cost.

Answer 1

1]	WORKINGS FOR JOB COST:
		101	102	103	Total
	Direct materials	$              3,000	$            4,500	$           1,800	$            9,300
	Direct labor	$              3,200	$            2,400	$           2,000	$            7,600
	Overhead applied [DLH*$6]	$              2,400	$            1,800	$           1,500	$            5,700
	Direct labor hours = Direct labor cost/8	400	300	250
	Total job cost	$              8,600	$            8,700	$           5,300	$          22,600
	Status	Completed & Sold	Completed	WIP
	ANSWERS:
1]	February 28, balances:	Raw Materials	WIP	Finished Goods
	February 1, balances	$                     -	$                   -	$                  -
	Purchases/Additions	$            25,000	$         22,600	$        17,300
	Total available	$            25,000	$         22,600	$        17,300
	Less: Consumption/Transfer to FG/COGS	$              9,300	$           17300	$           8,600
	Febtruay 28, balane	$            15,700	$           5,300	$           8,700
2]	Factory overhead costs incurred:
	Indirect labor = Total labor cost-Direct labor cost = 8500-7600 =	$                  900
	Other costs	$              5,000
	Total factory overhead incurred	$              5,900
	Factory overhead applied	$              5,700
	Underapplied overhead = 5900-5700 =	$                  200
3]	Entry to treat underapplied overhead as period cost:
	Cost of goods sold	$                  200
	Factory overhead		$               200