Schmeltz Industries organized in January and recorded the following transactions

Question

Schmeltz Industries organized in January and recorded the following transactions during its first month of operation:

Jan. 5 Purchased materials on account for $800,000.

Jan. 9 Used materials costing $450,000 on job no. 1001.

Jan. 14 Used materials costing $200,000 on job no. 1002.

Jan. 18 Used materials costing $100,000 on job no. 1003.

Jan. 25 Applied the following direct labor costs to jobs: job no. 1001, $3,600; job no.

1002, $5,400; job no. 1003, $1,350. (Direct labor workers earn $18 per hour.)

Jan. 27 Applied manufacturing overhead to all jobs at a rate of $450 per direct labor hour.

Jan. 28 Completed and transferred job no. 1001 and job no. 1002 to the finished

goods warehouse.

Jan. 29 Sold job no. 1001 on account for $725,000.

Jan. 31 Recorded and paid actual January manufacturing overhead costs of $250,000,

cash.

Jan. 31 Closed the Manufacturing Overhead account directly to Cost of Goods Sold.

a. Prepare journal entries for each of the above transactions.

b. Compute the balance of the Cost of Goods Sold account at January 31.

c. Determine the company’s inventory balances at January 31.

d. Was manufacturing overhead in January overapplied, or was it underapplied? Explain.

Explanation / Answer

Date Account titles & Explanations Debit Credit 5-Jan raw materials inventory 800000 accounts payable 800000 (raw materials purchased on account) 9-Jan work in process 450000 raw materials inventory 450000 (direct materials issued to job 1001) 14-Jan work in process 200000 raw materials inventory 200000 (direct materials issued to job 1002) 18-Jan work in process 100000 raw materials inventory 100000 (direct materials issued to job 1003) 25-Jan work inprocess 10350 (3600+5400+1350) factory labor cost 10350 (direct labor cost charged to jobs) 27-Jan work in process 258750 (10350/18) labor hours * $450 OH rate manufacturing overhead 258750 (overhead applied to jobs) 28-Jan finished goods 884000 work in process 884000 (on completion jobs 1001 & 1002) 29-Jan accounts receivable 725000 sales 725000 (on sale of job 1001) cost of goods sold 543600 finished goods 543600 (cost of the job 1001 sold) 31-Jan manufacturing overhead 250000 cash 250000 (payment of the months overheads) 31-Jan manufacturing overhead 8750 cost of goods sold 8750 (overapplied overhead transferred to cogs) b) Cost of goods sold = cost of job 1001 - overhead overapplied = 543600 - 8750 = $534,850 c) Inventory balances: Raw material inventory = 800000 (purchases) - issues of 450000+200000+100000 = $50,000 Work in process = $135100 - job 1003 Finished goods = $340400 - job 1002 Cost of jobs: 1001 1002 1003 Total direct material 450000 200000 100000 750000 direct labor 3600 5400 1350 10350 overhead applied 90000 135000 33750 258750 total cost incurred on jobs 543600 340400 135100 1019100 status of completion & sale completed completed wip & sold d) Manufacturing overhead was overapplied as it is more than the overhead expenditure by $8750 overheads applied to the jobs 258750 overhead incurred 250000 overapplied overhead 8750

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