Medlar Corp.maintains a Web-based general ledger.Overhead is applied on the basis of direct labor costs.Its bookkeeper accidentally deleted most of the entries that had been recorded for January.A printout of the general ledger (in T-account form)showed the following:

A review of the prior year's financial statements,the current year's budget,and January's source documents produced the following information:
(1) Accounts Payable are used for raw material purchases only.January purchases were $49,000.
(2) Factory overhead costs for January were $17,000 none of which is indirect materials.
(3) The January 1 balance for finished goods inventory was $10,000.
(4) There was a single job in process at January 31 with a cost of $2,000 for direct materials and $1,500 for direct labor.
(5) Total cost of goods manufactured for January was $90,000.
(6) All direct laborers earn the same rate ($13/hour).During January,2,500 direct labor hours were worked.
(7) The predetermined overhead allocation rate is based on direct labor costs.Budgeted (expected)overhead for the year is $195,000 and budgeted (expected)direct labor is $390,000.
Write in the missing amounts (a)through (o)in the T-accounts above.

Question

Medlar Corp.maintains a Web-based general ledger.Overhead is applied on the basis of direct labor costs.Its bookkeeper accidentally deleted most of the entries that had been recorded for January.A printout of the general ledger (in T-account form)showed the following:

A review of the prior year's financial statements,the current year's budget,and January's source documents produced the following information:
(1) Accounts Payable are used for raw material purchases only.January purchases were $49,000.
(2) Factory overhead costs for January were $17,000 none of which is indirect materials.
(3) The January 1 balance for finished goods inventory was $10,000.
(4) There was a single job in process at January 31 with a cost of $2,000 for direct materials and $1,500 for direct labor.
(5) Total cost of goods manufactured for January was $90,000.
(6) All direct laborers earn the same rate ($13/hour).During January,2,500 direct labor hours were worked.
(7) The predetermined overhead allocation rate is based on direct labor costs.Budgeted (expected)overhead for the year is $195,000 and budgeted (expected)direct labor is $390,000.
Write in the missing amounts (a)through (o)in the T-accounts above.

Quizplus · Accepted Answer

(1) Purchases of $49,000: debit of $49,000 to Raw Materials Inventory (A.; credit of $49,000 to Accounts Payable (i).
(2) Overhead costs of $17,000: debit of $17,000 to Factory Overhead (m)
(3) January 1 balance in finished goods inventory (j)
(4) Overhead applied to jobs = $195,000/$390,000 (item 7) = 50%
Job in Goods in Process = $2,000 + $1,500 + ($1,500 x .50) = $4,250 (g)
(5) Cost of goods manufactured = $90,000: debit of $90,000 to Finished Goods Inventory (k), credit of $90,000 to Goods in Process Inventory (f)
(6) Direct labor used = 2,500 hours x $13/hour = $32,500: debit to Goods in Process Inventory (d)
(7) Overhead applied to production = $32,500 x .50 = $16,250: debit to Goods in Process Inventory (e), credit to Factory Overhead (n)
Additional calculations:
(b). $10,000 + $49,000 - (b) = $17,500; (b) = $41,500: corresponding debit to Goods in Process Inventory for $41,500 (c)
(h) $5,000 + $49,000 - (h) = $9,000; (h) = $45,000
(l) $10,000 + $90,000 - (l) = $15,000; (l) = $85,000: corresponding debit to Cost of Goods Sold (o)