Question

4. The King Company uses a job order costing system. The following activities took place during the month of May a. Raw materials (all direct) used in production, $80,000 b. Salaries and wages cost incurred: Direct labor cost, $40,000 Indirect labor cost, $30,000. c. Property taxes payable on factory buildings, $20,000. d. Depreciation on factory equipment, $50,000. e. Manufacturing overhead is applied at the predetermined rate of 300% of direct labor cost. f. Cost of Goods Manufactured for the month, $150,000. (a) Prepare journal entries to record the information given above. General Journal Trans. Account Titles / Debit Credit (2 points) (3 points) (2 points) d. (2 points) (3 points) (2 points) (b) is manufacturing overhead over- or underapplied for the month? What is the amount? (2 points)

Answer 1

A.Raw Materials Used in production $80,000                                     

Raw materials used to generally transferred to Work –in process inventory                                        

                                               

A.            Work-in process inventory A/C Dr            80000   

                                To Raw Material Inventory A/C                  80000

                (Being Raw material used)                          

                                               

                                               

B. Salaries and wages cost incurred                                        

Direct labour cost 40000                                             

Indirect labour cost   30000                                         

                                               

                                               

B.            Direct labour cost A/C       Dr        40000   

                                 To cash/Accounts payable A/C                  40000

                (Being Labour cost incurred)                      

                                               

                For transfer of direct labour                       

                Work-in process A/C Dr                40000   

                                      To Direct labour A/C                 40000

                                               

                Indirect labour cost A/C       Dr     30000   

                                 To cash/Accounts payable A/C                  30000

                (Being Labour cost incurred)                      

                                               

                For transfer of Indirect labour                   

                Manufacturing Overhead A/C Dr            30000   

                                 To Indirect Labour cost A/C                        30000

               

                               

Property tax payable on factory building 20000                                

                                               

C.            Property Tax expense A/C Dr    20000   

                                        To Property tax payable A/C                               20000

                (Being Property tax expense due)                          

                                               

                                               

Depreciation on Factory equipment 50000                                         

                                               

D.            Manufacturing overhead A/C Dr              50000   

                                To Accumulated Depreciation A/C                            50000

                (Being Depreciation recorded for factory equipment)                    

                                               

                                               

Manufacturing is 300% of Direct labour cost                                      

                                               

E.            Work-in process invenotry A/C Dr(40000*300%)               120000

                                 To Manufacturing Overhead A/C                                            120000

                (Being Manufacturing overhead applied)                             

                                               

Cost of goods manufactured 150000                                      

                                               

F              Finished goods inventory A/C    150000

                                       To Work-in process inventory A/C                     150000

                (Being Cost of goods manufactured)                      

                                               

                                               

                                               

B.                                           

Manufacturing overhead includes                                           

Indirect materials                                            

Indirect labour                                 

Depreciation on buildings and machines                                               

Insurance taxes and maintanence on factory facilities                                    

                                               

Actual Manufacturing overhead =            30000+20000+50000                       

Actual Manufacturing overhead =            100000                 

                                               

Manufacturing overhead applied=           120000                 

                                               

This is a case of over absorption of manufacturing overheads since actual overheads are lower than the applied overhead                                           

                                               

Over absorption of overheads= Applied overhead- Actual overhead                       

                                                          =120000-100000                     

Over absorption of overheads= $20000