2. (8 points) Reed Incorporated uses a job-order costing system and a predetermi
ID: 2541144 • Letter: 2
Question
2. (8 points) 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 $240,000 and machine hours would be 8,000. The following information pertains to December of the current year: Job 10 $16,000 Job 11 $26,000 Job 12 $38,000 Total $80,000 Work-in-process, Dec. 1 December production activity: Materials requisitioned Direct labor cost Machine hours Labor hours $4,000 2,400 400 hrs. 120 hrs. $4,800 3,600 700 hrs. 180 hrs. $7,200 4,000 900 hrs. 200 hrs. $16,000 10,000 2,000 hrs. 500 hrs. Actual manufacturing overhead cost incurred in December was $61,000. Required: A. Compute the predetermined overhead application rate. B. Determine the total cost associated with each job. C. If Jobs 10 and 12 were completed, prepare the journal entry to move the cost. D. If Job 10 was delivered to customers that paid $50,000 cash, prepare the journal entries. E. What is the gross margin for Job 10? F. What is the cost assigned to ending work in process? Assuming no beginning finished goods what is the cost assigned to ending finished goods? How much was overhead over/underapplied? G. H.Explanation / Answer
Answer A Predetermined Overhead application rate = Estimated Manufacturing Overheads / Estimated machine hours Predetermined Overhead application rate = $240000/8000 machine hours = $30 per machine hour Answer B Calculation of total cost associated with each job Job 10 Job 11 Job 12 Direct Material $4,000.00 $4,800.00 $7,200.00 Direct Labour $2,400.00 $3,600.00 $4,000.00 Manufacturing overhead applied $12,000.00 $21,000.00 $27,000.00 Total cost associated with each job $18,400.00 $29,400.00 $38,200.00 Answer C Journal entry to move the Jobs 10 and 12 Account Titles Debit Credit Finished Goods Inventory $56,600.00 Work in process Inventory - Job 10 $18,400.00 Work in process Inventory - Job 12 $38,200.00 Answer D Journal entry for sale of Job 10 Account Titles Debit Credit Cash $50,000.00 Sales $50,000.00 Account Titles Debit Credit Cost of goods sold $18,400.00 Finished Goods Inventory $18,400.00 Answer E Gross Margin for Job 10 Sales $50,000.00 Less : Cost of good sold $18,400.00 Gross Margin for Job 10 $31,600.00 Answer F Cost assigned to ending work in process Ending work in process - Job 11 $29,400.00 Answer G Cost assigned to ending Finished Goods Inventory Ending Finished Goods Inventory - Job 12 $38,200.00 Answer H Calculation of over or under applied overheads Actual overhead incurred for December $61,000.00 Less : Applied Overhead (2000 hours * $30) $60,000.00 Under applied Overheads $1,000.00
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