2. Davis Inc. uses a job order cost accounting system and keeps perpetual invent

Question

2. Davis Inc. uses 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                 $20,000

                  Job 102                   16,000

                  Job 103                   24,000

                                               $60,000

2.   Direct labor incurred and charged to jobs during the month was:

                  Job 101                 $30,000

                  Job 102                   28,000

                  Job 103                   20,000

                                               $78,000

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: (28 points)

(a) Prepare journal entries to record the above transactions.

(b) How much manufacturing overhead was applied to Job 103 during the month?

(c) Compute the unit cost of Jobs 101 and 103.

(d) What is the balance in Work In Process Inventory at the end of the month?

(e) Determine if manufacturing overhead was under- or over-applied during the month. How much?

Explanation / Answer

(a) JOURNAL ENTRIES:

_____________________________________________________________________________________

DATE                                 TITLE & DESCRIPTION                   DEBIT($)                  CREDIT($)                      

                                          (Material assigned to jobs )

2                                       Work in progress a/c                            78,000

                                                  Factory Labour                                                         78,000

3.                                          ( Labour assigned to jobs)

4.                                     Work in progress inventory a/c             58,500

                                                 Manufacturing overhead a/c                                    58,500

                                        ( Manufacturing overhead assigned to jobs)

5.                                       Finished goods inventory a/c                                          131,500

                                                      Work in porgress inventory a/c                                                      131,500

                                          ( Completion of jobs 101 & 103)

(b) Manufacturing overhead applied to Job 103 dururing the month is $15,000

(c) Unit cost of jobs 101 and 103 are $72.5 and $572.82 respectively

(d) Balance in work in progress inventory is $63,000 ie. Job 102

(e) Manufacturing overhead are under applied to the extent of $7,500 ( i.e 58,500 applied - 66,000 actual)

Working Notes:

                                                                                                                                            (Amount in $)

______________________________________________________________________________________

                                                         101                            102                     103                         Total              

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