Question

P15-1A: Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2020, Job 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $20,000, direct labor $12,000, and manufacturing overhead $16,000. As of January 1, Job 49 had been completed at a cost of $90,000 and was part of finished goods inventory. There was a $15,000 balance in the Raw Materials Inventory account.

During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $122,000 and $158,000, respectively. The following additional events occurred during the month.

• 1. Purchased additional raw materials of $90,000 on account.
• 2. Incurred factory labor costs of $70,000. Of this amount $16,000 related to employer payroll taxes.
• 3. Incurred manufacturing overhead costs as follows: indirect materials $17,000, indirect labor $20,000, depreciation expense on equipment $12,000, and various other manufacturing overhead costs on account $16,000.
• 4. Assigned direct materials and direct labor to jobs as follows.

Job No.		Direct Materials		Direct Labor
50		$10,000		$ 5,000
51		39,000		25,000
52		30,000		20,000

Instructions

a. Calculate the predetermined overhead rate for 2020, assuming Lott Company estimates total manufacturing overhead costs of $840,000, direct labor costs of $700,000, and direct labor hours of 20,000 for the year.

b. Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job 50.

c. Prepare the journal entries to record the purchase of raw materials, the factory labor costs incurred, and the manufacturing overhead costs incurred during the month of January.

d. Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in (a). Post all costs to the job cost sheets as necessary.

e. Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or entries) to record the completion of any job(s) during the month.

Job 50, $69,000

Job 51, $94,000

f. Prepare the journal entry (or entries) to record the sale of any job(s) during the month.

g. What is the balance in the Finished Goods Inventory account at the end of the month? What does this balance consist of?

h. What is the amount of over- or underapplied overhead?

Answer 1

(a) Predetermined rate overhead rate for 2020,assuming  Lott Company estimates total manufacturing overhead costs of $840,000, direct labor costs of $700,000, and direct labor hours of 20,000 for the year is:-

Predetermined overhead rate =Total estimated manufacturing overhead cost /direct labor costs

=$8,40,000 / $7,00,000

= 1.2 or 120% of direct Labor cost

(b) Job Cost sheets for Job 50, 51, 52 is as follows:-

Job 50
Date	Direct Material	Direct Labor	Manufacturing overhead
Opening bal.	20000	12000	16000
January	10000	5000	6000
Cost of completed job	30000	17000	22000

Total Cost=$ 30000 + $17000 + $ 22000= $69000

Job 51
Date	Direct Material	Direct Labor	Manufacturing Overhead
Jan	39000	25000	30000
Cost of completed job	39000	25000	30000

Total cost of job 51= $39000 + $25000 + $30000= $94000

Job 52
Date	Direct Material	Direct Labor	Manufacturing Overhead
Jan	30000	20000	24000
Cost of completed job	30000	20000	24000

Total cost of job 52 = $30000 + $20000 + $24000= $74000

(c)Following are the general entries to record the purchase of raw material, factory labor cost incurred, and manufacturing overhead cost are as follows:-

Raw Material A/c dr. $90000

To Accounts Payable $90000

( being raw material purchased)

For factory labor cost incurred:-

Factory Labor a/c( debit) $70000

To Factory wages Payable $54000

To Employer payroll Taxes $ 16000

( being factory labor cost incurred)

For manufacturing overhead cost :-

Manufacturing overhead a/c (debit) $65000

To Raw material $ 17000

To Factory labor $20000

To Accumulated depreciation $12000

To Accounts payable $16000

( being manufacturing overhead cost incurred)

(d)  the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production are:-

Finished good a/c (debit) ($69000+$94000) $163000

To Work in Progress a/c $163000

(e) Total of job cost sheets for any job(s) completed during the month and the journal entry to record the completion of any job(s) during the month.

1 .work in progress inventory ($10000+39000+30000) a/c debit $79000

to Raw material inventory $79000

2. work in progress inventory($5000+$25000+$20000) a/c debit $50000

to Factory Labor $ 50000

3. work in progress inventory( $ 50000*120%) a/c debit $60000

To Manufacturing overhead $60000

(f) the journal entry (or entries) to record the sale of any job(s) during the month. are:-

	Particular	Debit($)	Credit($)
1	Accounts receivable ($122,000 + $158,000).	280000
	To sales (being sales made)		280000
2.	Cost of goods sold($ $90000+ $65000)	155000
	To Finished Goods ( being cost of job)		155000

(g) The balance of finished good inventory account at the end of the month

Job 51 = $94000

(h) Manufacturing cost incurred =$65000

Manufacturing Overhead applied =$ 60000

Manufacturing overhead under applied = $5000