Sovi.AI - AI Math Tutor

Scan to solve math questions
ENFRDEESJAZH-CNZH-TW

QUESTION IMAGE

3. explain why the manufacturing overhead was underapplied or overappli…

Question

  1. explain why the manufacturing overhead was underapplied or overapplied. exercise 3–10 applying overhead; journal entries; t-accounts lo3–1, lo3–2 dillon products manufactures various machined parts to customer specifications. the company uses a job-order costing system and applies overhead cost to jobs based on machine-hours. at the beginning of the year, the company used a cost formula to estimate $4,800,000 in manufacturing overhead cost at an activity level of 240,000 machine-hours. the company spent the month of january working on a large order for 16,000 custom-made machined parts. the company had no work in process at the beginning of january. cost data relating to january follow: a. raw materials purchased on account, $325,000. b. raw materials used in production, $290,000 (80% direct materials and 20% indirect materials). c. labor cost accrued in the factory, $180,000 (one-third direct labor and two-thirds indirect labor). d. depreciation recorded on factory equipment, $75,000. e. other manufacturing overhead costs incurred on account, $62,000. f. manufacturing overhead cost was applied to production on the basis of 15,000 machine-hours actually worked. g. the completed job for 16,000 custom-made machined parts was moved into the finished goods warehouse on january 31 to await delivery to the customer. (in computing the dollar amount for this entry, remember the cost of a completed job consists of direct materials, direct labor, and applied overhead.) required: 1. prepare journal entries to record items (a) through (f) above ignore item (g) for the moment. 2. prepare t-accounts for manufacturing overhead and work in process. post the relevant items from your journal entries to these t-accounts. 3. prepare a journal entry for item (g) above. 4. if 10,000 of the custom-made machined parts are shipped to the customer in february, how much of this job’s cost will be included in cost of goods sold for february?

Explanation:

Response
1. Journal Entries
(a) Raw materials purchased on account

Step1: Identify accounts

Raw Materials Inventory (asset) increases, Accounts Payable (liability) increases.

Step2: Journal entry

Debit Raw Materials Inventory $325,000; Credit Accounts Payable $325,000.
$\text{Journal Entry (a):} \\
\text{Debit: Raw Materials Inventory } \$325,000 \\
\text{Credit: Accounts Payable } \$325,000$

(b) Raw materials used in production

Step1: Calculate direct and indirect materials

Direct materials: $290,000 \times 80\% = \$232,000$; Indirect materials: $290,000 \times 20\% = \$58,000$.

Step2: Journal entry

Debit Work in Process (direct) $232,000, Debit Manufacturing Overhead (indirect) $58,000; Credit Raw Materials Inventory $290,000.
$\text{Journal Entry (b):} \\
\text{Debit: Work in Process } \$232,000 \\
\text{Debit: Manufacturing Overhead } \$58,000 \\
\text{Credit: Raw Materials Inventory } \$290,000$

(c) Labor cost accrued in the factory

Step1: Calculate direct and indirect labor

Direct labor: $180,000 \times \frac{1}{3} = \$60,000$; Indirect labor: $180,000 \times \frac{2}{3} = \$120,000$.

Step2: Journal entry

Debit Work in Process (direct) $60,000, Debit Manufacturing Overhead (indirect) $120,000; Credit Wages Payable $180,000.
$\text{Journal Entry (c):} \\
\text{Debit: Work in Process } \$60,000 \\
\text{Debit: Manufacturing Overhead } \$120,000 \\
\text{Credit: Wages Payable } \$180,000$

(d) Depreciation on factory equipment

Step1: Identify accounts

Manufacturing Overhead (indirect cost) increases, Accumulated Depreciation (contra - asset) increases.

Step2: Journal entry

Debit Manufacturing Overhead $75,000; Credit Accumulated Depreciation - Factory Equipment $75,000.
$\text{Journal Entry (d):} \\
\text{Debit: Manufacturing Overhead } \$75,000 \\
\text{Credit: Accumulated Depreciation - Factory Equipment } \$75,000$

(e) Other manufacturing overhead costs incurred on account

Step1: Identify accounts

Manufacturing Overhead (indirect cost) increases, Accounts Payable (liability) increases.

Step2: Journal entry

Debit Manufacturing Overhead $62,000; Credit Accounts Payable $62,000.
$\text{Journal Entry (e):} \\
\text{Debit: Manufacturing Overhead } \$62,000 \\
\text{Credit: Accounts Payable } \$62,000$

(f) Manufacturing overhead applied to production

Step1: Calculate predetermined overhead rate

Predetermined overhead rate: $\frac{\$4,800,000}{240,000 \text{ machine - hours}} = \$20$ per machine - hour.

Step2: Calculate applied overhead

Applied overhead: $15,000 \text{ machine - hours} \times \$20 = \$300,000$.

Step3: Journal entry

Debit Work in Process $300,000; Credit Manufacturing Overhead $300,000.
$\text{Journal Entry (f):} \\
\text{Debit: Work in Process } \$300,000 \\
\text{Credit: Manufacturing Overhead } \$300,000$

2. T - accounts
Manufacturing Overhead
DebitCredit
(c) $120,000
(d) $75,000
(e) $62,000
Total Debits: $58,000 + 120,000 + 75,000 + 62,000 = \$315,000$Total Credits: $\$300,000$
Balance: $315,000 - 300,000 = \$15,000$ (Debit, underapplied)
Work in Process
DebitCredit
(c) $60,000
(f) $300,000
Total Debits: $232,000+60,000 + 300,000=\$592,000$
3. Journal entry for item (g)

Step1: Cost of completed job

Cost of completed job = Direct materials + Direct labor + Applied overhead = $232,000 + 60,000+300,000 = \$592,000$.

Step2: Journal entry

Debit Finished Goods Inventory $592,000; C…

Answer:

s

  1. Journal Entries as above.
  2. T - accounts as above (Manufacturing Overhead has a debit balance of $15,000; Work in Process has a debit balance of $592,000 before entry (g)).
  3. Journal Entry (g): Debit Finished Goods Inventory $592,000; Credit Work in Process $592,000.
  4. Cost included in cost of goods sold for February: $\$370,000$