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Mountain Manufacturing Company produces custom stamped metal parts for a variety of customers in Western Canada. During...

Mountain Manufacturing Company produces custom stamped metal parts for a variety of customers in Western Canada. During January, the company had two jobs in process. Job A was an order for 1,200 stamped parts and was started in December. Job A had $12,000 of manufacturing costs already accumulated on January 1. Job B was an order for 1,000 stamped parts and was started in January. The company used a job-order costing system. Total manufacturing overhead for the year was estimated to be $576,000. Mountain Manufacturing uses direct labour-hours as the allocation base to establish its predetermined overhead rate. A total of 19,200 direct labour-hours are expected to be worked during the year. On January 1, the start of the company’s fiscal year, inventory account balances were as follows: Raw Materials $ 15,000 Work in Process $ 12,000 Finished Goods $ 10,000 During the month of January, the following transactions were completed: Raw materials were purchased for $30,000. Raw materials were requisitioned for use in production in the amount of $35,000. Of this amount, $25,000 was related to manufacturing ($5,000 for Job A and $20,000 for Job B) and the rest were indirect materials. In January, $32,000 of direct labour ($7,000 for Job A and $25,000 for Job B). In addition, $2,000 of indirect labour costs were incurred. In January, the company incurred the following general factory costs: Utilities expense of $8,000, rent on factory equipment of $8,000, and insurance costs of $1,900. The company recognized $10,000 in depreciation on factory equipment. The company applied manufacturing overhead to Job A and Job B. A total of 350 direct labour-hours were spent completing Job A and 1,250 direct labour-hours were recorded for Job B. Administrative salaries of $30,000 were paid in January. Selling expenses totalled $6,000 in January. Job A was completed in January. The completed cost of Job A according to the job cost sheet was $34,500. Job B remains in process at the end of January. Sales of all 1,200 units in Job A were recorded on account in the amount of $48,300 in January. Required: 1. Prepare journal entries to record the transactions for January. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Prepare T-accounts. Determine ending balances in the inventory accounts and in the Manufacturing Overhead account. 3. Prepare a schedule of cost of goods manufactured. 4a. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 4b. Determine the adjusted Cost of Goods Sold. 5. Prepare an income statement for the month of January.

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Answer #1

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Journal Entries: Debit Credit
1 Raw Material Inventory $30,000
cash $30,000
(Raw material purchased)
2 Work in Process-Job A $5,000
Work in Process-Job B $20,000
Raw Material Inventory $25,000
(Record Direct material used)
3 Manufacturing Overhead $10,000
Raw Material Inventory $10,000
(Record indirect material used)
4 Work in Progress- Job A $7,000
Work in Progress- Job B $25,000
Cash $32,000
(Record direct labour used)
5 Manufacturing Overhead $2,000
Cash $2,000
(Record indirect labour used)
6 Manufacturing Overhead $17,900
Cash $17,900
(Record Utilities exp $8000, rent on factory equipment $8000
and insurance cost $1900)
7 Manufacturing Overhead $10,000
Accumulated Depreciation-Factory Equipment $10,000
(Depreciation expense on factory equipment)
8 Work in Progress- Job A $10,500
Work in Progress- Job B $37,500
Manufacturing Overhead $48,000
(Record overhead applied)
Working: Calculation of overhead
Total Manufacturing Overhead $576,000
Total Direct labour hours 19200
Therefore Manufacturing overhead per hour
=$576000/19200
=$30 per labour hour
Job -A spend 350 Direct labour hour
so, we could charge Overhead of $10500 (350 hours * $30)
Job-B spend 1250 Direct labour hours
so, we could charge Overhead of $37500 (1250 hours * $30)
9 Adminsitrative Salaries 30000
Cash 30000
10 Selling Expenses $6,000
cash $6,000
(Salary expense recorded)
11 Finished Goods Inventory $34,500
work in process- Job A $34,500
(Record Completion of Job A)
12 Accounts Receivable $48,300
Sale $48,300
(Record sale of Job-A for $48300 on account)
13 Cost of Goods Sold $34,500
Finished Goods Inventory $34,500
(Record total cost of Job-A now sold)
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