Question

G-Force Woodcraft manufactures customized household furnishings. The company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. G-Force expects to incur $2,205,000 of manufacturing overhead costs and estimated direct labour costs of $3,150,000 during 2016. At the end of December 2018, G-Force reported work in process inventory (Job 551) of $93,000. The following events occurred during January 2019.

i) Purchased materials on account, $392,000

ii) Incurred manufacturing wages of $400,000

iii) Requisitioned direct materials and used direct labour in manufacturing

___Job ___Direct Materials ___Direct Labour

Job 551 ____$70,200________ $61,200

Job 552 _____97,500 ________115,600

Job 553 _____105,300________78,200

Job 554 _____ 117,000_______ 85,000

iv) Issued indirect materials to production, $30,000

v) Charged indirect manufacturing wages to production, $60,000

vi) Other manufacturing overhead costs incurred on units 551 to 554 amounted to $134,000

vii) Allocated overheads to jobs at the predetermined rate

viii)Units completed: 551, 552 & 554 ix) Sold units 551 & 554 (billed customers at a margin of 33⅓% on sales)

Required:

(a) Compute G-Force’s predetermined manufacturing overhead rate for 2019 and Calculate the total manufacturing costs for each job.

(b) Using the total figures, record the above transactions in the general journal.

(d) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account, clearly showing the balance before closing the account. State the journal entries necessary to dispose of the variance. Assume that the manufacturing overhead variance is immaterial.

(e) What is the balance in the Cost of Goods Sold account after the adjustment and  Compute G-Forcer’s gross profit earned on the jobs, after adjusting for the manufacturing overhead variance

(g) Post the appropriate entries to Work in Process Inventory account & determine the account balance on January 31

Answer 1

ANSWER:

Part a

Budgeted Manufacture overhead	$        2,205,000
Divided by: Budgeted direct labor costs	3,150,000
Predetermined overhead rate	70%

Part b

G-Force Woodcraft
Individual Job sheet
Job	Job 551	Job 552	Job 553	Job 554	Total
Finished Goods inventory
Beginning work in progress	$         93,000				$     93,000
During period
Direct material	$          70,200	$        97,500	$      105,300	$     117,000	$   390,000
Direct labor	$         61,200	$      115,600	$        78,200	$       85,000	$   340,000
Applied overhead (Direct labor * 70%)	$           42,840	$        80,920	$        54,740	$       59,500	$   238,000
Total cost added during period	$          174,240	$      294,020	$      238,240	$     261,500	$   968,000
Total cost	$          267,240	$      294,020	$      238,240	$     261,500	$1,061,000
Status	Finished goods (sold)	Finished goods (unsold)	In progress	Finished goods (sold)
Cost included in	Cost of goods Sold	Finished goods inventory	Work in progress inventory	Cost of goods Sold

Part c

G-Force Woodcraft
Journal entries
Event	General Journal	Debit	Credit
i	Raw material inventory	$      392,000
	Accounts payable		$     392,000
	(To record Purchase of raw material inventory)
ii	Factory labor	$      400,000
	Wages payable (if unpaid)/ cash (if paid)		$     400,000
	(To record direct labor Consumed.)
iii	Work in progress inventory	$      730,000
	Factory labor		$     340,000
	Raw material inventory		$     390,000
	(To record Issue of raw material inventory and labor into production process.)
iv	Manufacture overhead	$        30,000
	Raw material inventory		$       30,000
	(To record Issue of indirect raw material inventory for Manufacturing.)
v	Manufacture overhead	$        60,000
	Factory labor		$       60,000
	(To record indirect labor Consumed.)
vi	Manufacture overhead	$      134,000
	Cash		$     134,000
	(To record other manufacturing overhead costs incurred.)
vii	Work in progress inventory	$      238,000
	Manufacture overhead		238000
	(To record Manufacture overhead Applied to Job.)
viii	Finished goods inventory	$      822,760
	Work in progress inventory		$     822,760
	(To record completion of Finished goods inventory.) (267240+294020+261500)
ix	Cash	$      793,110
	Sales Revenue		$     793,110
	(To record sales revenue.) (33.333333% of sales revenue = 50% of cost) (528740+(528740*50%))
ix	Cost of goods sold	$      528,740
	Finished goods inventory		$   528,740
	(To record Finished goods Inventory sold.) (Total cost of goods sold = 267240+261500 = 528740)

Part d

Manufacture Overhead
Transaction	Debit	Credit	Transaction
Beg. Bal	-	238,000	7
iv	30,000
v	60,000
vi	134,000
		14,000	Bal
Adj	14,000
End. Bal	$                      0

Actual Manufacture overhead incurred (30000+60000+134000)	224000
Less: Manufacture overhead Applied	$         238,000
Under (Over) applied of overhead	(14,000)

Journal entries
Event	General Journal	Debit	Credit
Adj.	Manufacture overhead	$       14,000
	Cost of goods sold		$       14,000
	(To record over applied of manufacture overhead.)

Part e

Cost of goods sold before adjustment	$            528,740
Less: (Over) applied of overhead	(14,000)
Cost of goods sold after adjustment	$            514,740

Part f

Sales revenue	$         793,110
Less: Cost of goods sold (after adjustment)	$         514,740
Gross profit earned on the jobs, after adjusting	$         278,370

Part g

Work in Progress Inventory
Transaction	Debit	Credit	Transaction
Beg. Bal	93,000	822,760	viii (Cost of goods Manufactured)
iii	390,000
iii	340,000
vii	238,000
End. Bal	$         238,240

Finished Goods Inventory
Transaction	Debit	Credit	Transaction
Beg. Bal	0	528,740	ix (Cost of goods sold)
	822,760
End. Bal	$      294,020

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