Question

The Maryland Company is a computer repair shop and had the following transactions and events during the year. Estimated overhead for the year was $175,000; estimated labor for the year was 6,000 hours. 1. Purchased materials on account, $126,000. 2. Traced materials to repair jobs $110,880; general shop materials used $9,500. 3. Labor traced to repair jobs $165,000, untraced labor was $22,200. 4. Overhead incurred (not including materials or labor): $139,600. 5. Overhead is applied to repair jobs based on labor hours. All workers were paid $30/hr. 6. Ending work-in-process consisted of one repair job with a cost of $1,976. There was no beginning work-in-process. 7. Repair jobs were billed to the customers for $476,000. Required: (a) Prepare the journal entries to record the transactions for the year. (b) Prepare the journal entry to write-off the over- or underapplied overhead to the cost of repair jobs. (c) What would Maryland's operating profit for the year?

Answer 1

Answer :

Journal entries in the books of Maryland company

Date	Particulars	Debit ($)	Credit ($)
1.	Raw materials A/c	126000
	To Accounts payable A/c		126000
2.	Work in process A/c	110880
	Manufacturing overheads A/c	9500
	To Raw materials A/c		120380
3.	Work in process A/c	165000
	Manufacturing overheads A/c	22220
	To Salaries and wages payable		187220
4.	Manufacturing overhead A/c	139600
	To Accounts payable		139600
5.	Work in process A/c	160435
	To manufacturing overhead A/c		160435
6.	Manufacturing overhead A/c	1976
	To Accounts payable		1976
Written off entry
	Cost of goods sold A/c	12861
	To Manufacturing overheads A/c		12861
	Cost of goods sold A/c	449176
	To work in process A/c		449176
	Accounts receivable A/c	476000
	To Sales		476000

Manufacturing overheads A/c
9500	160435
22220	Bal fig 12861
1976
139600
173296	173296

work in process A/c
110880	Bal fig 449176
165000
12861
160435
449176	449176

Predetermined overhead rate = Estimate overhead cost / Estimated labor hours

= 175000 / 6000

= 29.17

Manufacturing overhead applied to job = Actual machine hours * predetermined overhead rate

= 5500*29.17

= 1,60,435

Profit = Sales - Cost of goods sold

= 476000 - 449176

= 26824

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