Question

#5-26

During May, the following transactions were completed and reported by Jerico Company:

1. Materials purchased on account, $60,100.

2. Materials issued to production to fill job-order requisitions: direct materials, $50,000; indirect materials, $8,800.

3. Payroll for the month: direct labor, $75,000; indirect labor, $36,000; administrative, $28,000; sales, $19,000.

4. Depreciation on factory plant and equipment, $10,400.

5. Property taxes on the factory accrued during the month, $1,450.

6. Insurance on the factory expired with a credit to the prepaid insurance account, $6,200.

7. Factory utilities, $5,500.

8. Advertising paid with cash, $7,900.

9. Depreciation on office equipment, $800; on sales vehicles, $1,650.

10. Legal fees incurred but not yet paid for preparation of lease agreements, $750.

11. Overhead is charged to production at a rate of $18 per direct labor hour. Records show 4,000 direct labor hours were worked during the month.

12. Cost of jobs completed during the month, $160,000.

The company also reported the following beginning balances in its inventory accounts:

Materials Inventory	$  7,500
Work-in-Process Inventory	37,000
Finished Goods Inventory	50,000

Instructions:

1) Prepare the journal entries to record the transactions occurring in May.

2) Prepare T-accounts for Material Inventory, Overhead Control, Work-in-Process Inventory, and Finished Goods Inventory. Post all relevant entries to these accounts.

3) Prepare a statement of Cost of Goods Manufactured.

4) If the overhead variance is all allocated to Cost of Goods Sold, by how much will Cost of Goods Sold decrease or increase?

Answer 1

1)
	General Journal	Debit	Credit
a.	Materials	$             60,100.00
	Accounts Payable		$   60,100.00
b.	Work in Process	$             50,000.00
	Overhead Control	$               8,800.00
	Materials		$   58,800.00
c.	Work in Process	$             75,000.00
	Overhead Control	$             36,000.00
	Administrative Expense	$             28,000.00
	Selling Expense	$             19,000.00
	Wages Payable		$ 158,000.00
d.	Overhead Control	$             10,400.00
	Accumulated Depreciation		$   10,400.00
e.	Overhead Control	$               1,450.00
	Property Taxes Payable		$     1,450.00
f.	Overhead Control	$               6,200.00
	Prepaid Insurance		$     6,200.00
g.	Overhead Control	$               5,500.00
	Utilities Payable		$     5,500.00
h.	Selling Expense	$               7,900.00
	Cash		$     7,900.00
i.	Administrative Expense	$                  800.00
	Selling Expense	$               1,650.00
	Accumulated Depreciation		$     2,450.00
j.	Administrative Expense	$                  750.00
	Accounts Payable		$        750.00
k.	Work in Process ($18 × 4,000)	$             72,000.00
	Overhead Control		$   72,000.00
l.	Finished Goods	$           160,000.00
	Work in Process		$ 160,000.00
2)
	Materials			Work in Process
	Bal. 7,500	(b) 58,800		Bal. 37,000	(l) 160,000
	(a) 60,100			(b) 50,000
Balance	8,800			(c) 75,000
				(k) 72,000
			Bal.	74,000
	Finished Goods			Overhead Control
	Bal. 50,000			(b) 8,800	(k) 72,000
	(l) 160,000			(c) 36,000
Balance	210,000			(d) 10,400
				(e) 1,450
				(f) 6,200
				(g) 5,500
					3,650	Overapplied overhead
3)
Jerico Company
Statement of Cost of Goods Manufactured
For the Month Ended May 31, 20XX
Direct materials		50,000	$
Direct labor		75,000
Overhead:
Supplies	8,800
Indirect labor	36,000
Depreciation, plant, and equipment	10,400
Property taxes	1,450
Utilities, factory	5,500
Insurance	6,200
	68,350
Add: Overapplied overhead	3,650
Overhead applied		72,000
Manufacturing costs added		197,000
Add: Beginning work in process		37,000
Less: Ending work in process		-74,000
Cost of goods manufactured		160,000
4)	Cost of goods sold decreases by $3,650