Jessie Manufacturing Company employs a job order cost accounting system and keep

Question

Jessie 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 $25,000
Job 102 15,000
Job 103 25,000
$65,000

2. Direct labor incurred and charged to jobs during the month was:
Job 101 $32,000
Job 102 28,000
Job 103 24,000
$84,000

3. Manufacturing overhead was applied to jobs worked on using a
predetermined overhead rate based on 75% of direct labor costs.

4. Actual manufacturing overhead costs incurred during the month
amounted to $66,000.

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

A.1. DR WIP $65,000 & CR Direct Materials $65,000

A.2. DR WIP $84,000 & CR Salaries & Wages Payable $84,000

B.1. ANSWER = $18,000

Manufacturing OH applied to job 103 = 75% of Direct Labor Cost = (75%) ($24,000) = $18,000

B.2. ANSWER = Job 101 = $81/unit

ANSWER Job 103 = $335/unit

Unit Cost = (Direct Material + Direct Labor + Manufacturing Overhead) / Total units produced

Job 101 = ($25,000 + $32,000 + (75% * $32,000)) / 1000 units = $81,000 / 1000 units = $81/unit

Job 103 = ($25,000 + $24,000 + $18,000) / 200 units = $67,000 / 200 units = $335/unit

B.3. ANSWER = $212,000

WIP = Total Direct Materials + Total Direct Labor + Total Manufacturing Overhead

WIP = $65,000 + $84,000 + (75% * $84,000) = $212,000

B.4 ANSWER = UNDERAPPLIED by $3000

Actual Manufacturing Overhead = $66,000

Applied Manufacturing Overhead = 75% * $84,000 = $63,000

Actual > Applied = UNDERAPPLIED

$66,000 - $63,000 = $3000

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