Watson Manufacturing Company employs a job order cost accounting system and keep
ID: 2333402 • Letter: W
Question
Watson Manufacturing Company employs a job order cost accounting system and keeps perpetual inventory records. The following transactions occurred in the first month of operations: 1. Direct materials requisitioned during the month: Job 101 Job 102 Job 103 $20,000 16,000 24,000 2. Direct labor incurred and charged to jobs during the month was: Job 101 Job 102 Job 103 $32,000 28,000 20,000 Manufacturing overhead was applied to jobs worked on using a predetermined overhead rate based on 75% of direct labor costs. 3. Actual manufacturing overhead costs incurred during the month amounted to $66,000. 4. 5. Job 101 consisting of 1,000 units and Job 103 consisting of 200 units were completed during the month. Instructions (a) Prepare journal entries to record the above transactions. (b) Answer the following questions: 1. How much manufacturing overhead was applied to Job 103 during the month? 2. Compute the unit cost of Jobs 101 and 103. 3. What is the balance in Work In Process Inventory at the end of the month? 4. Determine if manufacturing overhead was under- or overapplied during the month. How much?
Explanation / Answer
Solution: a. Sr. no. General Journal Debit Credit 1. Work in Process Inventory 60,000 Raw Materials Inventory 60,000 2. Work in Process Inventory 80,000 Factory Labor 80,000 3. Work in Process Inventory 60,000 Manufacturing Overhead 60,000 Notes: Manufacturing Overhead = Direct labor incurred x predetermined overhead rate =$80,000 x 75% =$60,000 4. Manufacturing Overhead 66,000 Cash or Accounts Payables 66,000 5. Finished Goods Inventory 135,000 Work in Process Inventory 135,000 Notes: Job 101 & Job 103 completed transferred to finished goods inventory Job 101 Job 103 Direct materials 20,000 24,000 Direct labor 32,000 20,000 Overhead applied 24000 15000 [Direct labor incurred x predetermined overhead rate] [32,000 x 75% ] [20,000 x 75% ] Total cost 76,000 59,000 Finished Goods Inventory Job 101 76,000 Job 103 59,000 Finished Goods Inventory 135,000 b. 1. Manufacturing overhead was applied to Job 103 15,000 Working Notes: Direct Labor for Job 103 is 20,000 Manufacturing overhead 15,000 [Direct labor incurred x predetermined overhead rate] [20,000 x 75% = 15,000 ] 2. Unit cost Job 101 76 Job 103 295 Working Notes: Job 101 Job 103 Direct materials 20,000 24,000 Direct labor 32,000 20,000 Overhead applied 24000 15000 [Direct labor incurred x predetermined overhead rate] [32,000 x 75% ] [20,000 x 75% ] Total cost 76,000 59,000 divide by Units 1,000 200 Unit cost 76 295 3. Balance in Work In Process Inventory at the end of the month 65,000 Working Notes: Balance in Work In Process Inventory at the end of the month is Work In Process Inventory on Job 102 Job 102 Direct materials 16,000 Direct labor 28,000 Overhead applied 21000 [Direct labor incurred x predetermined overhead rate] [28,000 x 75% = 21,000] Total cost 65,000 4. Manufacturing overhead Underapplied by $6,000 during the month Working Notes: Actual manufacturing overhead $66,000 Manufacturing overhead applied $60,000 Underapplied overhead $6,000 as actual is $6,000 higher than applied manufacturing OH Notes: Manufacturing overhead applied Manufacturing Overhead = Direct labor incurred x predetermined overhead rate =$80,000 x 75% =$60,000 Please feel free to ask if anything about above solution in comment section of the question.
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