Question

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 $21,200, direct labor $12,720, and manufacturing overhead $16,960. As of January 1, Job 49 had been completed at a cost of $95,400 and was part of finished goods inventory. There was a $15,900 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 $129,320 and $167,480, respectively. The following additional events occurred during the month.

1.		Purchased additional raw materials of $95,400 on account.
2.		Incurred factory labor costs of $74,200. Of this amount $16,960 related to employer payroll taxes.
3.		Incurred manufacturing overhead costs as follows: indirect materials $18,020; indirect labor $21,200; depreciation expense on equipment $12,720; and various other manufacturing overhead costs on account $16,960.
4.		Assigned direct materials and direct labor to jobs as follows.

Job No.		Direct Materials		Direct Labor
50		$10,600		$5,300
51		41,340		26,500
52		31,800		21,200

1. Calculate the predetermined overhead rate for 2020, assuming Lott Company estimates total manufacturing overhead costs of $890,400, direct labor costs of $742,000, and direct labor hours of 21,200 for the year.

2. Prepare the journal entries to record (1) the purchase of raw materials, (2) the factory labor costs incurred, and (3) the manufacturing overhead costs incurred during the month of January

3. Prepare the journal entries to record the assignment of (1) direct materials, (2) direct labor, and (3) manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in (a).

4. Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job 50. Post all costs to the job cost sheets as necessary.

Answer 1

Answer to Question 1 and 2:

Question 1 Computation of Predetermined Overhead Rate: Predetermined Overhead Rate = Estimated Manufacturing Overheads/Estimated Direct Labor Cost Predetermined Overhead Rate = 890,400/742,000 Predetermined Overhead Rate = 1.2 or 120% Question 2 Journal Entries Account Title Debit Credit Raw Materials $ 95,400 Accounts Payable $ (To record purchase of raw material on account) 95,400 Factory Labor $ 74,200 Employee Wages Payable (74,200 -16,960) Employeer Payroll Taxes Payable (To record purchase of factory labor expense) $ 57,240 $ 16,960 Manufacturing Overhead $ 68,900 Accounts Payable $ 16,960 Accumulated Depreciation 12,720 Raw Materials Inventory $ 18,020 Factory Labor $ 21,200 (To record purchase of manufacturing overhead expenses)

Answer to Question 3:

Question 3 Account Title Debit Credit Work In Process Inventory $ 83,740 Raw Materials Inventory (10,600 + 41,340 + 31,800) $ (To record consumption of raw material for jobs 83,740 53,000 Work In Process Inventory $ Factory Labor (5,300 + 26,500 + 21,200) (To record direct labor used for jobs $ 53,000 Work In Process Inventory $ 63,600 Manufacturing Overheads (53,000 X 120%) $ (To record manufacturing overheads incurred for jobs) 63,600

Answer to Question 4:

Question 4 Job Cost Sheets Job No. 50 Date Direct Materials Direct Labor 12,720 5,300 18,020 Manufacturing Overhead $ 16,960 $ 6,360 $ 23,320 Beginning 21,200 $ Jan. 10,600 $ $ 31,800 $ Cost of completed job Direct materials $31,800 Direct labor $18,020 Manufacturing overhead $23,320 Total cost $73,140 *$5,300 X 120% (Direct labour cost X Predetermined overhead rate) = Manufacturing Overhead

Answer to Question 4:

Manufacturing 31,800* $31,800 Job Cost Sheets Job No. 51 Date Direct Materials Direct Labor Jan. 41,340 26,500 $41,340 $26,500 Cost of completed job Direct materials $41,340 Direct labor $26,500 Manufacturing overhead $31,800 Total cost $99,640 *$26,500 X 120% (Direct labour cost X Predetermined overhead rate) = Manufacturing Overhead Job Cost Sheets Job No. 52 Date Direct Materials Direct Labor Jan. 31,800 21,200 $31,800 $21,200 *$21,200 X 120% (Direct labour cost X Predetermined overhead rate) = Manufacturing Overhead Manufacturing 25,440* $25,440