HARTSELL MANUFACTURING HARTSELL MANUFACTURING has two major public-park projects

Question

HARTSELL MANUFACTURING

HARTSELL MANUFACTURING has two major public-park projects to provide with comprehensive irrigation in one of its service locations this month. Job J57 and Job K52 involve 15 acres of landscaped terrain which will require special-order sprinkler heads to meet the specifications of the project. Using a job cost system to produce these parts, the following events occurred during December 2012.

Raw materials were requisitioned from the company’s inventory on December 2 for $5,061; on December 8 for $1,059; and on December 14 for $3,459. In each instance, two-thirds (2/3) of these materials were for J57 and the rest for K52.

Six time tickets were turned in for these two projects for a total amount of 18 hours of work. All the workers were paid $16.50 per hour. The time tickets were dated December 3, December 9, and December 15. On each of those days, 6 labor hours were spent on these jobs, two-thirds (2/3) for J57 and the rest for K52.

The predetermined overhead rate is based on machine hours. The expected machine hour use for the year is 2,112 hours, and the anticipated overhead costs are $840,576 for the year. The machine were used by workers on projects K52 and J57 on December 3, 9, and 15.Hart Six machine hours were used for project K52 (2 each day), and 8.5 machine hours were used for project J57 (2.5 the first day and 3 each of the other days). Both of these special orders were completed on December 15, producing 237 sprinkler heads for J57 and 142 sprinkler heads for K52.

Additional job order activities during this period of time included:

Dec. 1 Purchased raw materials from Durbin Supply Company on account for $53,200.

Dec. 2 Issued $40,000 of direct materials from the company’s inventory to jobs other than K52 and J57 and $3,000 of indirect materials.

Dec.12 Paid HARTSELL MANUFACTURING factory salaries and wages in the amount of $65,000.

Dec.13 Paid the factory’s water bill of $9,000.

Dec.18 Transferred $50,000 of costs from other completed jobs to finished goods.

Dec.21 Paid the factory’s electric bill of $12,000 for HARTSELL MANUFACTURING’ factory.

Dec.31 Made adjusting entries for the factory that included accrued property taxes of $12,000, prepaid insurance of $8,800, and accumulated depreciation of $16,000.

Instructions

(a) Set up the job cost sheets for Job No. J57 and Job No. K52. Determine the total cost for each manufacturing special order for these jobs. (Round unit cost to nearest cent.)

(b) Journalize the activities from these job cost sheets in the general journal. Also journalize the other costs that occurred during this period of time.

(c) Assuming that Manufacturing Overhead has a debit balance of $3,600, determine whether overhead has been under/over applied and make the adjusting entry.

(d) Why would HARTSELL MANUFACTURING choose machine hours as the cost driver for the overhead rather than direct labor cost?

Explanation / Answer

Part A)

The job cost sheets are given as below:

__________

___________

Part B)

The journal entries are as follows:

_________

Part C)

The overhead is underapplied. The adjusting entry is as follows:

_________

Part D)

Hartsell manufacturing would select machine hours as the cost driver as the production required the use of machine that involved minimum use of labor. Therefore, the number of machine hours for producing the sprinkler heads would provide a more reasonable estimate of the overhead cost than the direct labor cost.

Job Cost Sheet Job Number – J57 Date Requested Dec.2 Date Completed Dec. 15, 2012 Item – Special Order Parts Date Direct Materials Direct Labor Manufacturing Overhead Hours Rate Amount Dec. 02 3,374 (5,061*2/3) Dec. 03 66 (6*16.50*2/3) 2.5 398 (840,576/2,112) 995 Dec. 08 706 (1,059*2/3) Dec. 09 66 3 398 1,194 Dec. 14 2,306 (3,459*2/3) Dec. 15 66 3 398 1,194 Cost Summary Direct Materials 6,386 Direct Labor 198 Manufacturing Overhead 3,383 Total Cost 9,967 Unit Cost (9,967/237) 42.05

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