Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 42

Journal Entries and Accounting for Overhead

Humming Company manufactures high quality musical instruments for professional musicians. The company estimated that it would incur $120,000 in factory overhead costs and 8,000 direct labor-hours for the year. The April 1 balances in the inventory accounts follow:

Materials inventory	$27,000
Work-in-process inventory (S10)	10,500
Finished goods inventory (J21)	54,000

Job S10 is the only job in process on April 1. The following transactions were recorded for the month of April.

a. Purchased materials on account, $90,000.

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b. Issued $91,000 of materials to production, $4,000 of which was for indirect materials. Cost of direct materials issued:

Job S10	$23,000
Job C20	42,000
Job M54	22,000

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c. Incurred and paid payroll cost of $20,460:

Direct labor cost ($13/hour; total 920 hours)
Job S10	$ 6,110
Job C20	4,030
Job M54	1,820
Indirect labor	2,500
Selling and administrative salaries	6,000

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d. Recognized depreciation for the month:

Manufacturing assets	$2,200
Selling and administrative assets	1,700

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e. Paid advertising expenses $6,000

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f. Incurred factory utilities costs $1,300

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g. Incurred other factory overhead costs $1,600

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h. Applied factory overhead to production on the basis of direct labor-hours.

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i. Completed Job S10 during the month and transferred it to the finished goods warehouse.

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j. Sold Job J21 on account for $59,000.

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k. Received $25,000 of collections on account from customers during the month.

Required

1. Calculate the company’s predetermined overhead rate.

2. Prepare journal entries for the April transactions. Letter your entries from a to k.

3. What was the balance of the Materials Inventory account on April 30?

4. What was the balance of the Work-in-Process Inventory account on April 30?

5. What was the amount of underapplied or overapplied overhead?

Step 1 of 5

1.?Predetermined Overhead Rate = $ 120,000 / 8,000 = $15 per DL hour