Question

 Kim's Asphalt does driveway and parking lot resurfacing work for large commercial clients as well as small residential clients. An Inventory of materials and equipment is on hand at all times so that work can start as quickly as possible. Special equipment is ordered as required. On May 1, the Materials and Equipment Inventory account had a balance of $38,000. The Work-in-Process Inventory account is maintained to record costs of work not yet complete. There were two such jobs on May 1 with the following costs.

 Overhead has been applied at 30 percent of the costs of direct labor.

 During May. Kim's Asphalt started two new jobs. Additional work was carried out on Jobs 27 and 33, with the latter completed and billed to Pine Ridge Estates. Details on the costs incurred on jobs during May follow.

 Other Mey Events

 1. Received $12.700 payment on Job 24 delivered to customer in April.

 2. Purchased materials and equipment for $9,600 on account.

 3. Billed Pine Ridge Estates $132.000 and received payment for $85,000 of that amount.

 4. Determined that payroll for Indirect labor personnel totaled $670.

 5. Issued supplies and incidental materials for current jobs costing $175.

 6. Recorded overhead and advertising costs for the operation as follows (all cash except equipment depreciation).

 Required:

 a. Prepare journal entries to record the flow of costs for operations during May.

 b. Calculate the amount of over- or underapplied overhead for the month.

 c. Determine inventory balances for Materials and Equipment Inventory and Work-in-process inventory.

Answer 1

(a)

	General Journal	Debit	Credit
1	Cash	$12,700
	Accounts receivable		$12,700
2	Material and equipment inventory	$9,600
	Accounts payable		$9,600
3	Accounts receivable	$132,000
	Sales revenue		$132,000
	Cash	$85,000
	Accounts receivable		$85,000
4	Manufacturing overhead	$670
	Wages payable		$670
5	Manufacturing overhead	$175
	Material and equipment inventory		$175
6	Manufacturing overhead ($570+695+340+220+345+470)	$2,640
	Selling and administrative cost-(Advertising)	620
	Cash ($2,640+620-470)		$2,790
	Accumulated depreciation		470

(b).

Actual overhead = $670 (indirect labor)+175(indirect material)+2,640(other manufacturing overhead) = $3,485

Applied overhead = $19,550 (Total direct labor cost for May)*30% = $5,865

Over applied overhead = $2,380

(c).

Material and equipment inventory = $38,000 (Beginning balance)+9,600 (Purchases)-16,100 (Direct material issued)-175 (Indirect material)

Material and equipment inventory = $31,325

Work in process inventory = $120,440 (Job 27+Job 33)+16,100 (Direct material issued)+19,550 (Direct labor cost)+5,865 (Applied overhead)-100,990 (Cost of Job 33 completed ) = $60,965

Working Note:

Cost of Job 33 completed = $86,955 ( Beginning balance)+14,035 (5,000+6,950+6,950*30%) = $100,990

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