Ch 2

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Louisiana State University *

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7060

Subject

Accounting

Date

Feb 20, 2024

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pdf

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19

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Printed by: kmilut1@lsu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 15. ( LO 5 ) At end of the year, a company has a $1,200 debit balance in Manufacturing Overhead. The company: 1. makes an adjusting entry by debiting Manufacturing Overhead Applied for $1,200 and crediting Manufacturing Overhead for $1,200. 2. makes an adjusting entry by debiting Manufacturing Overhead Expense for $1,200 and crediting Manufacturing Overhead for $1,200. 3. makes an adjusting entry by debiting Cost of Goods Sold for $1,200 and crediting Manufacturing Overhead for $1,200. 4. makes no adjusting entry because differences between actual overhead and the amount applied are a normal part of job order costing and will average out over the next year. c. The company would make an adjusting entry for the underapplied overhead by debiting Cost of Goods Sold for $1,200 and crediting Manufacturing Overhead for $1,200, not by debiting (a) Manufacturing Overhead Applied for $1,200 or (b) Manufacturing Overhead Expense for $1,200. Choice (d) is incorrect because at the end of the year, a company makes an entry to eliminate any balance in Manufacturing Overhead. 16. ( LO 5 ) Manufacturing overhead is underapplied if: 1. actual overhead is less than applied. 2. actual overhead is greater than applied. 3. the predetermined rate equals the actual rate. 4. actual overhead equals applied overhead. b. Manufacturing overhead is underapplied if actual overhead is greater than applied overhead. The other choices are incorrect because (a) if actual overhead is less than applied, then manufacturing overhead is overapplied; (c) if the predetermined rate equals the actual rate, the actual overhead costs incurred equal the overhead costs applied, neither over- nor underapplied; and (d) if the actual overhead equals the applied overhead, neither over- nor underapplied occurs. Practice Brief Exercises Prepare entries to record factory labor . kmilut1@lsu.edu
Printed by: kmilut1@lsu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 1. ( LO 2 ) During January, its first month of operations, Swarzak Company had factory labor of $9,000. Time tickets show that the factory labor of $9,000 was used as follows: Job 1 $3,200, Job 2 $2,600, Job 3 $2,200, and general factory use $1,000. Prepare summary journal entries to record factory labor. 1. Jan. 31 Factory Labor 9,000 Payroll Liabilities 9,000 Jan. 31 Work in Process Inventory 8,000 * Manufacturing Overhead 1,000 Factory Labor 9,000 * $3,200 + $2,600 + $2,200 Assign manufacturing overhead to production . 2. ( LO 3 ) Brock Company estimates that annual manufacturing overhead costs will be $950,000. Annual direct labor cost is the base used to apply overhead, and it is estimated to be $500,000. During January, Brock incurred direct labor costs of $40,000. Prepare the entry to assign overhead to production. 2. Overhead rate based on direct labor cost = ($950,000 ÷ $500,000) = 190%. Jan. 31 Work in Process Inventory 76,000 Manufacturing Overhead ($40,000 × 190%) 76,000 Prepare entries for completion and sale of jobs . 3. ( LO 4 ) In May, Huntzinger Company completes Jobs 14, 15, and 16. Job 14 cost $40,000, Job 15 $70,000, and Job 16 $35,000. On May 31, Job 14 is sold to a customer on account for $72,000. Journalize the entries for the completion of the three jobs and the sale of Job 14. 3. May 31 Finished Goods Inventory 145,000 * kmilut1@lsu.edu
Printed by: kmilut1@lsu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Work in Process Inventory 145,000 31 Accounts Receivable 72,000 Sales Revenue 72,000 31 Cost of Goods Sold 40,000 Finished Goods Inventory 40,000 * $40,000 + $70,000 + $35,000 Prepare adjusting entries for under- and overapplied overhead . 4. ( LO 5 ) At December 31, the balances in Manufacturing Overhead are Alex Company —debit $2,200, Katz Company—credit $1,900. Prepare the adjusting entry for each company at December 31, assuming the adjustment is made to cost of goods sold. 4. Alex Company Dec. 31 Cost of Goods Sold 2,200 Manufacturing Overhead 2,200 Katz Company Dec. 31 Manufacturing Overhead 1,900 Cost of Goods Sold 1,900 Practice Exercises Analyze a job cost sheet and prepare entries for manufacturing costs . 1. ( LO 1 , 2 , 3 , 4 ) A job cost sheet for Michaels Company is shown below. Job No. 92 For 2,000 Units Date Direct Materials Direct Labor Manufacturing Overhead Beg. bal. Jan. 1 3,925 6,000 4,200 8 6,000 12 8,500 6,375 25 2,000 27 4,000 3,000 11,925 18,500 13,575 kmilut1@lsu.edu
Printed by: kmilut1@lsu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Job No. 92 For 2,000 Units Cost of completed job: Direct materials $11,925 Direct labor 18,500 Manufacturing overhead 13,575 Total cost $44,000 Unit cost ($44,000 ÷ 2,000) $ 22.00 Instructions 1. Answer the following questions. 1. What was the balance in Work in Process Inventory on January 1 if this was the only unfinished job? 2. If manufacturing overhead is applied on the basis of direct labor cost, what overhead rate was used in each year? 2. Prepare summary entries at January 31 to record the current year’s transactions pertaining to Job No. 92. 1. 1. 1. $14,125, or ($3,925 + $6,000 + $4,200). 2. Last year 70%, or ($4,200 ÷ $6,000); this year 75% (either $6,375 ÷ $8,500 or $3,000 ÷ $4,000). 2. Jan. 31 Work in Process Inventory 8,000 Raw Materials Inventory ($6,000 + $2,000) 8,000 31 Work in Process Inventory 12,500 Factory Labor ($8,500 + $4,000) 12,500 31 Work in Process Inventory 9,375 Manufacturing Overhead ($6,375 + $3,000) 9,375 31 Finished Goods Inventory 44,000 Work in Process Inventory 44,000 Compute the overhead rate and under- or overapplied overhead . kmilut1@lsu.edu
Printed by: kmilut1@lsu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 2. ( LO 3 , 5 ) Kwik Kopy Company applies operating overhead to photocopying jobs on the basis of machine hours used. Overhead costs are estimated to total $290,000 for the year, and machine usage is estimated at 125,000 hours. For the year, $295,000 of overhead costs are incurred and 130,000 hours are used. Instructions 1. Compute the service overhead rate for the year. 2. What is the amount of under- or overapplied overhead at December 31? 3. Assuming the under- or overapplied overhead for the year is not allocated to inventory accounts, prepare the adjusting entry to assign the amount to cost of services provided. 2. 1. $2.32 per machine hour ($290,000 ÷ 125,000). 2. $295,000 − ($2.32 × 130,000 machine hours) $295,000 − $301,600 = $6,600 overapplied 3. Operating Overhead 6,600 Cost of Services Provided 6,600 Practice Problem Compute predetermined overhead rate, apply overhead, and calculate under- or overapplied overhead . ( LO 3 , 5 ) Cardella Company applies overhead on the basis of direct labor costs. The company estimates annual overhead costs to be $760,000 and annual direct labor costs to be $950,000. During February, Cardella works on two jobs: A16 and B17. Summary data concerning these jobs are as follows. Manufacturing Costs Incurred Purchased $54,000 of raw materials on account. Factory labor $80,000. Manufacturing overhead incurred exclusive of indirect materials and indirect labor $59,800. This was comprised of utilities $25,000, insurance $9,000, depreciation $10,000, and property taxes $15,800. kmilut1@lsu.edu
Printed by: kmilut1@lsu.edu. Printing is for personal use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Assignment of Costs Direct materials: Job A16 $27,000, Job B17 $21,000 Indirect materials: $3,000 Direct labor: Job A16 $52,000, Job B17 $26,000 Indirect labor: $2,000 The company completed Job A16 and sold it on account for $150,000. Job B17 was only partially completed. Instructions 1. Compute the predetermined overhead rate. 2. Journalize the February transactions in the sequence presented in the chapter (use February 28 for all dates). 3. What was the amount of under- or overapplied manufacturing overhead? 1. Estimated annual overhead costs ÷ Estimated annual operating activity = Predetermined overhead rate $760,000 ÷ $950,000 = 80% 2. (1) Feb. 28 Raw Materials Inventory 54,000 Accounts Payable 54,000 (Purchase of raw materials on account) (2) 28 Factory Labor 80,000 Payroll Liabilities 80,000 (To record factory labor costs) (3) 28 Manufacturing Overhead 59,800 Utilities Payable 25,000 Prepaid Insurance 9,000 Accumulated Depreciation 10,000 Property Taxes Payable 15,800 (To record overhead costs) kmilut1@lsu.edu
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