Dream Makers is a small manufacturer of gold and platinum jewelry. It uses a job

Question

Dream Makers is a small manufacturer of gold and platinum jewelry. It uses a job costing system that applies overhead on the basis of direct labor hours. Budgeted factory overhead for the year was $455,600, and management budgeted 33,500 direct labor-hours. The company had no Materials, Work-in-Process, or Finished Goods Inventory at the beginning of April. These transactions were recorded during April a. April insurance cost for the manufacturing property and equipment was $1,800. The premium had been paid in January. b. Recorded $1,025 depreciation on an administrative asset. c. Purchased 21 pounds of high-grade polishing materials at $16 per pound (indirect materials). The purchase was on credit. d. Paid factory utility bill, $6,510, in cash. e. Incurred 4,000 hours and paid payroll costs of $160,000. Of this amount, 1,000 hours and $20,000 were indirect labor costs f. Incurred and paid other factory overhead costs, $6,270 g. Purchased $24,500 of materials. Direct materials included unpolished semiprecious stones and gold. Indirect materials included supplies and polishing materials. The purchase was on credit. h. Requisitioned $18,500 of direct materials and $1,600 of indirect materials from Materials Inventory. i. Incurred and paid miscellaneous selling and administrative expenses, $5,660 j. Incurred $3,505 depreciation on manufacturing equipment for April. k. Paid advertising expenses in cash, $2,650 Applied factory overhead to production on the basis of direct labor hours m. Completed goods costing $64,000 during the month n. Made sales on account in April, $56,410. The Cost of Goods Sold was $47,860 Required: 1. Compute the firm's predetermined factory overhead rate for the year 2. Prepare journal entries to record the April events 3. Calculate the amount of overapplied or underapplied overhead to be closed to the Cost of Goods Sold account on April 30 4. Prepare a schedule of Cost of Goods Manufactured and a schedule of Cost of Goods Solo 5. Prepare the income statement for April

Explanation / Answer

Solution:

Part 1 – Predetermined Factory Overhead Rate = Estimated factory overhead / estimated direct labor hours

= $455,600 / 33,500

= $13.60 per direct labor hour

Part 2 –

Journal Entries

Transaction

General Journal

Debit

Credit

a.

Factory Overhead (Insurance Expense)

$1,800

Prepaid Insurance

$1,800

b.

Administrative Expense

$1,025

Accumulated Depreciation - Admn Asset

$1,025

c.

Materials (21 * $16)

$336

Accounts Payable

$336

d.

Factory Overhead

$6,510

Cash

$6,510

e.

Work In Process

$140,000

Factory Overhead (Indirect Labor)

$20,000

Cash

$160,000

f.

Factory Overhead

$6,270

Cash

$6,270

g.

Materials

$24,500

Accounts Payable

$24,500

h.

Work In Process

$18,500

Factory Overhead (Indirect material)

$1,600

Materials

$20,100

i.

Selling and Administrative Expense

$5,660

Cash

$5,660

j.

Factory Overhead

$3,505

Accumulated Depreciation - Equipment

$3,505

k.

Selling and Administrative Expense

$2,650

Cash

$2,650

l.

Work In Process (3000 Hours Direct labor x $13.60)

$40,800

Factory Overhead

$40,800

m.

Finished Goods

$64,000

Work in Process

$64,000

n.

Accounts Receivable

$56,410

Sales Revenue

$56,410

Cost of Goods Sold

$47,860

Finished Goods Inventory

$47,860

Part 3 – Calculation of Over or Under Applied Overhead

Applied Factory Overhead (refer entry l) = $40,800

Actual Overhead incurred

$$

Insurance

$1,800

Utility Bills

$6,510

Indirect labor cost

$20,000

Other factory overhead

$6,270

Indirect materials

$1,600

Depreciation on equipment

$3,505

Total Actual Overhead

$39,685

Here applied overhead is higher than actual incurred overhead, it means overhead are OVER APPLIED.

OVER APPLIED Overhead = $40,800 - $39,685 = $1,115

Part 4 –

Schedule of Cost of Goods Manufactured

$$

Direct materials used

$18,500

Direct Labor Costs

$140,000

Applied Factory Overhead

$40,800

Total Manufacturing Cost

$199,300

Add: Beginning Work in Process Inventory

$0

$199,300

Less: Ending Work In Process Inventory

($135,300)

Cost of Goods Manufactured

$64,000

Schedule of Cost of Goods Sold

Schedule of Cost of Goods Sold

$$

Cost of Goods Manufactured

$64,000

Plus: Beginning finished goods inventory

$0

Cost of goods available for sale

$64,000

Less: Ending finished goods inventory

$16,140

Cost of goods sold

$47,860

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for remaining parts

Transaction

General Journal

Debit

Credit

a.

Factory Overhead (Insurance Expense)

$1,800

Prepaid Insurance

$1,800

b.

Administrative Expense

$1,025

Accumulated Depreciation - Admn Asset

$1,025

c.

Materials (21 * $16)

$336

Accounts Payable

$336

d.

Factory Overhead

$6,510

Cash

$6,510

e.

Work In Process

$140,000

Factory Overhead (Indirect Labor)

$20,000

Cash

$160,000

f.

Factory Overhead

$6,270

Cash

$6,270

g.

Materials

$24,500

Accounts Payable

$24,500

h.

Work In Process

$18,500

Factory Overhead (Indirect material)

$1,600

Materials

$20,100

i.

Selling and Administrative Expense

$5,660

Cash

$5,660

j.

Factory Overhead

$3,505

Accumulated Depreciation - Equipment

$3,505

k.

Selling and Administrative Expense

$2,650

Cash

$2,650

l.

Work In Process (3000 Hours Direct labor x $13.60)

$40,800

Factory Overhead

$40,800

m.

Finished Goods

$64,000

Work in Process

$64,000

n.

Accounts Receivable

$56,410

Sales Revenue

$56,410

Cost of Goods Sold

$47,860

Finished Goods Inventory

$47,860

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