Basic Job Costing Project Reed Incorporated uses a job-order costing system and

Question

Basic Job Costing Project Reed Incorporated uses a job-order costing system and a predetermined overhead rate based on machine hours At the beginning of the year, the company estimated manufacturing overhead for the year would be S240,000 and machine hours would be 8,000 The following information pertains to December of the current year: Job 10 S16,000 Job 11 $26,000 Job 12 S38,000 Total $80,000 Work-in-process, Dec. 1 The following transactions took place during the month of December: 1. 2. Purchased raw materials for $25,000 on credit; Requisitioned and used direct materials for the three jobs a. $4,000 for Job 10 b. $4,800 for Job 1:1 c. $7,200 for Job 12 3. Used indirect materials worth $20,000 4. Incurred direct labor costs as follows: $2,400 for Job 10 a. b. $3,600 for Job 1:1 c. $4,000 for Job 12 5. 6. 7. Incurred $30,000 worth of indirect manufacturing labor costs Depreciation on manufacturing plant and equipment $21,000 During the month of December, the company used the following direct labor hours and machine hours for the three iobs: ob 10 400 120 Job 11 700 180 ob 12 900 200 Total 2,000 500 Machine hours Labor hours Required: 1. Compute the predetermined overhead application rate 2. 3. Prepare the journal entries for the transactions that took place in December and apply manufacturing overhead to the jobs using the actual machine hours Determine the total cost associated with each job If jobs 10 and 12 were completed, prepared the journal entry to move jobs 10 and 12 to finished goods Delivered job 10 to customers that paid $40,000 cash; prepare the journal entries to sell job 10 and to recognize the associated cost of goods sold. What is the cost assigned to ending work in process (control account)? What is the cost assigned to ending finished goods (control account)? How much was manufacturing overhead over/underapplied? 4. 5. 6. 7. 8.

Explanation / Answer

1. Predetermined overhead application rate = Estimated manufacturing overhead/Estimated machine hours = $240000/8000 = $30 per machine hour.

2.

3.

4.

5.

6. Cost assigned to ending work in process (control account): Job 11 $55400

7. Cost assigned to ending finished goods (control account): Job 12 $76200

8. Manufacturing overhead incurred ($20000 + $30000 + $21000) $71000 - Manufacturing overhead applied $60000 = Manufacturing overhead underapplied $11000.

Transaction Account Titles and Explanation Debit Credit 1 Raw materials inventory 25000 Accounts payable 25000 (To record raw materials purchased on account) 2 Work in process inventory 16000 Raw Materials inventory 16000 (To record direct materials requisitioned) 3 Manufacturing overhead 20000 Raw Materials inventory 20000 (To record indirect materials used) 4 Work in process inventory 10000 Wages payable 10000 (To record direct labor cost incurred) 5 Manufacturing overhead 30000 Wages payable 30000 (To record indirect labor cost incurred) 6 Manufacturing overhead 21000 Accumulated depreciation-plant and equipment 21000 (To record depreciation on manufacturing plant and equipment) 7 Work in process inventory 60000 Manufacturing overhead (2000 x $30) 60000 (To record manufacturing overhead applied)

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