Question

Tyler Tooling Company uses a job order cost system with overhead applied to products on the basis of machine hours. For the upcoming year, the company estimated its total manufacturing overhead cost at $234,840 and total machine hours at 61,800. During the first month of operations, the company worked on three jobs and recorded the following actual direct materials cost, direct labor cost, and machine hours for each job:    

	Job 101			Job 102			Job 103			Total
Direct materials used	$	11,900		$	7,900		$	5,200		$	25,000
Direct labor	$	17,300		$	5,000		$	5,400		$	27,700
Machine hours		1,600	hours		2,500	hours		800	hours		4,900	hours

Job 101 was completed and sold for $50,800.
Job 102 was completed but not sold.
Job 103 is still in process.

Actual overhead costs recorded during the first month of operations totaled $14,020.

Required:

1. Prepare a journal entry showing the transfer of Job 102 into Finished Goods Inventory upon its completion.

2. Prepare the journal entries to recognize the sales revenue and cost of goods sold for Job 101.

3. Prepare the journal entry to transfer the balance of the Manufacturing Overhead account to Cost of Goods Sold.

Answer 1

Predetermined overhead rate= Estimated total manufacturing overhead/Estimated machine hours

= $234840/61800= $3.80 per MH

No.	Account titles and explanation	Debit	Credit
1)	Finished goods inventory ($7900+5000+2500*$3.80)	$22400
	Work in process inventory		$22400
	(To record transferred of Job 102 to finished goods inventory from work in process)
2)	Cash	$50800
	Sales revenue		$50800
	(To record sale revenue of Job 101)
	Cost of goods sold ($11900+17300+1600*$3.80)	$35280
	Finished goods inventory		$35280
	(To record cost of goods sold of Job 101)
3)	Manufacturing overhead	$4600
	Cost of goods sold		$4600
	(To record manufacturing overhead overapplied)

Manufacturing overhead applied= 4900 hours*$3.80 per MH= $18620

Overapplied or underapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $18620-14020= $4600 overapplied