Question

Reed Incorporated uses a job-order costing system and a predetermined overhead rate based on machine hours.

At the beginning of the year, the company estimated that the manufacturing overhead for the year would be $240,000 and machine hours would be 8,000.

The following information pertains to December of the current year:

	Job 10		Job 11		Job 12		Total
Work in process, Dec. 1	$16,000		$26,000		$38,000		$80,000
December production activity:
Materials requisitioned	$4,000		$4,800		$7,200		$16,000
Direct labor cost	2,400		3,600		4,000		10,000
Machine hours	400 hrs.		700 hrs.		900 hrs.		2,000 hrs.
Labor hours	120 hrs.		180 hrs.		200 hrs.		500 hrs.

Actual manufacturing overhead cost incurred in December was $61,000.

Required:

A. Compute the predetermined overhead application rate.
$

B. Determine the total cost associated with each job.

Job 10	$
Job 11	$
Job 12	$

C. If Jobs 10 and 12 were completed, prepare the journal entry to transfer the cost.

D. If Job 10 was delivered to customers that paid $50,000 in cash, prepare the journal entries.

E. What is the gross margin for Job 10?
$

F. What is the cost assigned to ending work in process?
$

G. Assuming no beginning finished goods balance, what is the cost assigned to ending finished goods?
$

H. How much was overhead over/underapplied?
$  

Answer 1

A Predetermined overhead rate based on machine hour Total manufacturing overheads $240,000 Machine hours 8,000 $30 per MH B Job 10 Job 11 Job 12 $34,400 $55,400 $76,2001 с Credit Debit $110,600 General Journal Finished goods Work in process (To record completion of Finished goods) $110,600 D General Journal Credit Debit $50,000 Cash $50,000 Sales (To record cash sales for Job 10) Debit Credit $34,4001 General Journal Cost of goods sold Finished goods (To record cost of goods sold) $34,400 E Gross margin for Job 10 Sales Cost of goods sold Gross margin for Job 10 $50,000 $34,400 $15,600 F Ending work in process $55,400 Job No. 11 G Ending Finished goods inventory $76,200 Job No. 12 H Under-applied overheads Actual manufacturing overheads Overheads applied Under-applied overheads $61,000 $60,000 $1,000 Working notes: Job 11 $26,000 Job 12 $38,000 Job Cost sheet Job 10 Opening Work in process $16,000 Add: Current period cost Direct material $4,000 Direct labour $2,400 Overhead Applied $12,000 Total Manufacturing Cost to account for $34,400 Closing Work in process $0 Cost of goods manufactured $34,400 $4,800 $3,600 $21,000 $55,4001 $55,400 $0 $7,200 $4,000 $27,000 $76,200 $0 $76,200 Overhead Applied Machine hours Overheads applied ($30 per MH) Job 10 400 $12,000 Job 11 700 $21,000 Job 12 900 $27,000