A welding company specializes in custom steel frames and uses job costing to acc

Question

A welding company specializes in custom steel frames and uses job costing to account for its operations. The following information is available as of May 1 for the work-in-process inventory account:

$2,520

Welding Company pays an hourly rate of $15 for direct labor. Manufacturing overhead costsare applied to jobs based on the direct labor hours used. During the month of May, Jacob Welding spends $5,800 to purchase materials and $4,650 for manufacturing overhead. The operations in May are summarized below.

Material Requisition

summary

304

Jobs 304, 306, 307 are completed in May but only Jobs 304 and 307 are delivered to customers.

Question: Prepare the necessary journal entries for May (assuming any over or underapplied manufacturing overhead is written off to cost of goods sold account monthly).

Job# Direct Materials Direct Labor Man. Overhead Total Cost 304 $3,000 $1,800

$2,520

$7,320 306 4,000 2,100 2,940 9,040 Total Cost 7,000 3,900 5,460 16,360

Explanation / Answer

Answer

Note : Predetermined manufacturing overhead rate = (5460/3900)*100 = 140% of direct labour cost

Journal Entries

1. Material inventory A/c Dr. $ 5,800

                            To Bank A/c Cr. $ 5,800

2. Manufacturing Overhead A/c Dr. $ 4650

                              To Bank A/c Cr. $ 4650

3. Work in process A/c (304) Dr. $ 1,100

   Work in process A/c (306) Dr. $ 900

   Work in process A/c (307) Dr. $ 2,800

   Work in process A/c (308) Dr. $ 750

                          TO Raw material inventories   A/c Cr. $ 5550

4. Work in process A/c (304) Dr. $ 600 ($ 15 *40)

    Work in process A/c (306) Dr. $ 450 ($ 15*30)

    Work in process A/c (307) Dr. $ 1650 ($ 15*110)

    Work in process A/c (308) Dr. $ 375 ($ 15*25)

                                             To Bank A/c (labor cost paid) Cr. $ 3075

5. Work in process A/c (304) Dr. $840 ($ 600 *140%)

    Work in process A/c (306) Dr. $630 ($ 450 *140%)

    Work in process A/c (307) Dr. $ 2310 ($1650 *140%)

    Work in process A/c (308) Dr. $ 525   ( $ 375 *140%)

                                             To manufacturing overhead A/c Cr. $ 4305 ($ 3075*140%)

6. Finished Goods (304) A/c Dr. $ 9860

    Finished Goods (306) A/c Dr. $ 11020

   Finished Goods (307) A/c Dr. $ 6760

                               To work in Process A/c (304) Cr. $ 9860 (7320 + 1100 + 600 + 840)

                               To work in Process A/c (306) Cr. $ 11020 (9040 + 900 + 450 + 630)

                               To work in Process A/c (307) Cr. $ 6760 (2800 + 1650 + 2310)

7. Cost of goods sold (304) A/c Dr. $ 9860

    Cost of goods sold (307) A/c Dr. $ 6760

                      To Finished Goods (304) A/c Cr. $ 9860

                        To Finished Goods (307) A/c Cr. $ 6760

8. Cost of Goods sold A/c dr. $ 345                     

      To manufacturing Overhead A/c Cr. $ 345($ 4650 - $4305)

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