Question

G-Force Woodcraft manufactures customized household furnishings. The company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. G-Force expects to incur $2,205,000 of manufacturing overhead costs and estimated direct labour costs of $3,150,000 during 2016. At the end of December 2018, G-Force reported work in process inventory (Job 551) of $93,000 The following events occurred during January 2019. i) Purchased materials on account, $392,000 ii) incurred manufacturing wages of $400,000 ill) Requisitioned direct materials and used direct labour in manufacturing Direct Materials Direct Labour Job 551 $70,200 $61,200 Job 552 97,500 115,600 Job 553 105,300 78,200 Job 554 117,000 85,000 iv) Issued indirect materials to production, $30,000 v) Charged indirect manufacturing wages to production, $60,000 vi) Other manufacturing overhead costs incurred on units 551 to 554 amounted to $134,000 vii) Allocated overheads to jobs at the predetermined rate viil) Units completed: 551, 552 & 554 ix) Sold units 551 & 554 (billed customers at a margin of 33 % on sales) Required: (a) Compute G-Force's predetermined manufacturing overhead rate for 2019. (1% marks) (b) Calculate the total manufacturing costs for each job. (4 marks) Using the total figures, record the above transactions in the general journal. (10 marks) (d) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account, clearly showing the balance before closing the account. State the journal entries necessary to dispose of the variance. Assume that the manufacturing overhead variance is immaterial. (4 marks)

Answer 1

a) calculate predetermined overhead rate :-

estimated overhead cost / direct labour cost

2205000/3150000 = 70%

b) calculate total manufacturing cost :-

job no. 551

Particular	Amount (in$)
Opening balance	93200
Add: direct material	70200
Direct labour	61200
Manufacturing cost (61200*70%)	42840
Total manufacturing cost	267440

Job no. 552

Particular	Amount (in$)
Direct material	97500
Add: direct labour	115600
Manufacturing cost (115600*70%)	80920
Total manufacturing cost	294020

Job no.553

Particular	Amount (in $)
Direct material	105300
Add: direct labour	78200
Manufacturing cost (78200*70%)	54740
Total manufacturing cost	238240

Job no.554

Particular	Amount (in$)
Direct material	117000
Add: direct labour	85000
Manufacturing cost (85000*70%)	59500
Total manufacturing cost	261500

c) prepare journal entries:-

Event	Account title and explanation	Debit (in$)	Credit (in$)
1.	Raw material inventory	392000
	To account payable		392000
	(To record purchase of raw materials inventory)
2.	Factor labour	400000
	To wages payable (if unpaid) cash (if paid)		400000
	(To record direct labour consumed)
3.	Work in progress inventory	730000
	To factory labour		340000
	To raw material inventory		390000
	(To record issue of raw material inventory and labour into production process)
4.	Manufacturing overhead	30000
	To raw material inventory		30000
	(To record issue of indirect raw material inventory for manufacturing)
5.	Manufacturing overhead	60000
	To factory labour		60000
	(To record indirect labour consumed)
6.	Manufacturing overhead	134000
	To cash		134000
	(To record other manufacturing overhead cost incurred)
7.	Work in progress inventory	238000
	To manufacturing overhead		238000
	(To record manufacturing overhead applied to job)
8.	Finished goods inventory (267240+294020+261500)	822760
	To work in progress inventory		822760
	(To record completion of finished goods inventory)
9.	Cash	793110
	To sales revenue [528740+(528740*50%)]		793110
	(To record sales revenue)
	(33.333333% of sales revenue = 50% of cost)
10.	Cost of goods sold (267240+261500)	528740
	To finished goods inventory		528740
	(To record the finished goods inventory sold)

d) manufacture overhead

Transaction	debit	credit	Transaction
Beginning balance		238000	7
iv	30000
v	60000
vi	134000
		14000	Balance
Adj.	14000
Ending balance	$0

Actual manufacturing overhead (30000+60000+134000)	224000
Less: manufacturing overhead applied	238000
Under (over) applied of overhead	(14000)

Journal entries:-

Event	general journal	debit	credit
Adj.	Manufacturing overhead	14000
	To cost of goods sold		14000
	(To record over applied of manufacturing overhead)