Question

4. Dawn Company has been in business for 2 years. At the beginning of Year 3, there is 1 job (Job #19) in process. At the end of Year 2, costs for this job were $18,000. Dawn Company uses a predetermined FOH rate to allocate FOH. Estimated FOH for the year was expected to be $37,500 and estimated DLS (the cost driver) was expected to be $30,000 At the beginning of Year 3 there is also 1 job in finished goods, Job #17, at a cost of $19,000. Raw Materials has a beginning balance of $20,000. Jobs 20 & 21 were started in Year 3. During Year 3, the following events happened: (a) Dawn purchased $30,000 of raw materials on account. (b) Paid $30,000 of labor. ) Direct Material and Direct Labor used during the year were as follows: DM DL Job #19 $ 7,000 $ 10,200 Job #20 $ 8,000 $ 3,800 Job #21 $ 24,000 $ 14,000 (d) Indirect materials used during this year were $1,700, Indirect labor was $2,000, and depreciation on the factory equipment was $8,000. (e) $22,900 of other factory overhead was incurred on account () Job #19 and Job #20 were completed. (8) Job #17 was sold for $26,000 on account and job #19 was sold for $60,000 cash. (h) Selling and administrative expenses were $8,000 for the year and were paid in cash.

Answer 1

1. Predetermined overhead rate = Estimated factory overhead / Direct labor cost

= 37,500 / 30,000

Predetermined overhead rate = 125% of direct labor cost

2. There is an overapplied factory overhead of 400

3. Debit " Manufacturing overhead " 400

Credit " Cost of goods sold " 400

3. Net income of 11,450

1. Preparation of T accounts Cash FG Inventory WIP Inventory 18,000 30,000 Balance Balance Labor Selling and Administrative 60,000 expenses Sales 8,000 64,500 Job # 17 66,950 Raw Material Inventory Labor Manufacturing Overhead 39,000 FG Inventory 28,000 35,000 Balance Job #19 19,000 Cost of goods sold 47,950 16,550 Balance Balance 22,000 55,500 Job #20 16,550 Cost of Goods Sold Accounts Receivable 26,000 Sub WIP Job #19 18,000 Sales Balance Balance 26,000 47,950 FG Inventory Manufacturing 66,950 Overhead Income Summary 7,000 FG Inventory 10,200 12,750 Raw Material Inventory Labor Manufacturing Overhead 10,200*125% 400 66,550 Sub WIP Job #20 Sales Balance Accounts Receivable 16,550 Income Summary Raw Material Inventory 20,000 Job #19 30,000 Job # 20 Job #21 Manufacturing Overhead Balance 7,000 8,000 24,000 1,700 9,300 8,000 FG Inventory 3,800 4,750 86,000 Accounts Receivable Cash Raw Material Inventory Labor Manufacturing Overhead 3,800*125% 26,000 60,000 Accumulated Depreciation Sub WIP Job # 21 Selling and Administrative expenses 8,000 Cash 8,000 Income Summary 8,000 Manufacturing Overhead 8,000 Balance Raw Material Inventory Labor Manufacturing Overhead 14,000* 125% 24,000 14,000 17,500 Balance 55,500 Wages Payable and Accounts Payable Raw Material Inventory Manufacturing Overhead 30,000 22,900 Manufacturing Overhead Actual Applied Raw Material Inventory 1,700 WIP Inventory Income Summary Sales 66,550 86,000 35,000 Cost of Goods Sold Selling and Administrative expenses Balance 52,900 2,000 8,000 8,000 Labor Accumulated Depreciation Wages Payable and Accounts Payable Cost of Goods Sold (Balancing amount) 11,450 22,900 400 Net income (Balancing amount)