Journal Entries and Accounting for Overhead
Humming Company manufactures high quality musical instruments for professional musicians. The company estimated that it would incur $120,000 in factory overhead costs and 8,000 direct labor-hours for the year. The April 1 balances in the inventory accounts follow:
Materials inventory | $27,000 |
Work-in-process inventory (S10) | 10,500 |
Finished goods inventory (J21) | 54,000 |
Job S10 is the only job in process on April 1. The following transactions were recorded for the month of April.
a. Purchased materials on account, $90,000.
b. Issued $91,000 of materials to production, $4,000 of which was for indirect materials. Cost of direct materials issued:
Job S10 | $23,000 |
Job C20 | 42,000 |
Job M54 | 22,000 |
c. Incurred and paid payroll cost of $20,460:
Direct labor cost ($13/hour; total 920 hours) |
|
Job S10 | $ 6,110 |
Job C20 | 4,030 |
Job M54 | 1,820 |
Indirect labor | 2,500 |
Selling and administrative salaries | 6,000 |
d. Recognized depreciation for the month:
Manufacturing assets | $2,200 |
Selling and administrative assets | 1,700 |
e. Paid advertising expenses $6,000
f. Incurred factory utilities costs $1,300
g. Incurred other factory overhead costs $1,600
h. Applied factory overhead to production on the basis of direct labor-hours.
i. Completed Job S10 during the month and transferred it to the finished goods warehouse.
j. Sold Job J21 on account for $59,000.
k. Received $25,000 of collections on account from customers during the month.
Required
1. Calculate the company’s predetermined overhead rate.
2. Prepare journal entries for the April transactions. Letter your entries from a to k.
3. What was the balance of the Materials Inventory account on April 30?
4. What was the balance of the Work-in-Process Inventory account on April 30?
5. What was the amount of underapplied or overapplied overhead?
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