In December 2012, Yerbury Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $25 per hour. The manager also estimated the following manufacturing overhead costs for year 2013.

In December 2012, Yerbury Company’s manager estimated next year’s total direct labor cost assuming 50 persons working an average of 2,000 hours each at an average wage rate of $25 per hour. The manager also estimated the following manufacturing overhead costs for year 2013.

 

Indirect labor	$	319,200
Factory supervision		240,000
Rent on factory building		140,000
Factory utilities		88,000
Factory insurance expired		68,000
Depreciation—Factory equipment		480,000
Repairs expense—Factory equipment		60,000
Factory supplies used		68,800
Miscellaneous production costs		36,000
Total estimated overhead costs	$	1,500,000

 

At the end of 2013, records show the company incurred $1,520,000 of actual overhead costs. It completed and sold five jobs with the following direct labor costs: Job 201, $604,000; Job 202, $563,000; Job 203, $298,000; Job 204, $716,000; and Job 205, $314,000. In addition, Job 206 is in process at the end of 2013 and had been charged $17,000 for direct labor. No jobs were in process at the end of 2012. The company’s predetermined overhead rate is based on direct labor cost.

Required
1.a	Determine the predetermined overhead rate for year 2013.

1.b	Determine the total overhead cost applied to each of the six jobs during year 2013.

 

2.

Assuming that any over- or underapplied overhead is not material, prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold at the end of year 2013.

 

Explanation:

1.a

Predetermined overhead rate

 

Estimated overhead costs		$1,500,000		$1,500,000
	=		=		=	60%
Estimated direct labor cost		[50 × 2,000 × $25]		$2,500,000

 
1.c

Overapplied or underapplied overhead determination

Actual overhead cost	$	1,520,000
Less: Applied overhead cost		1,507,200
Underapplied overhead	$	12,800

After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.

Farina Bay’s computer system generated the following trial balance on December 31, 2013. The company’s manager knows something is wrong with the trial balance because it does not show any balance for Goods in Process Inventory but does show balances for the Factory Payroll and Factory Overhead accounts.

   

		Debit			Credit
Cash	$	102,000
Accounts receivable		75,000
Raw materials inventory		80,000
Goods in process inventory		0
Finished goods inventory		15,000
Prepaid rent		3,000
Accounts payable				$	17,000
Notes payable					25,000
Common stock					50,000
Retained earnings					271,000
Sales					373,000
Cost of goods sold		218,000
Factory payroll		68,000
Factory overhead		115,000
Operating expenses		60,000
Totals	$	736,000		$	736,000

   

After examining various files, the manager identifies the following six source documents that need to be processed to bring the accounting records up to date.

   

Materials requisition 21-3010:		$	10,200	direct materials to Job 402
Materials requisition 21-3011:		$	18,600	direct materials to Job 404
Materials requisition 21-3012:		$	5,600	indirect materials
Labor time ticket 6052:		$	36,000	direct labor to Job 402
Labor time ticket 6053:		$	23,800	direct labor to Job 404
Labor time ticket 6054:		$	8,200	indirect labor

   

Jobs 402 and 404 are the only units in process at year-end. The predetermined overhead rate is 200% of direct labor cost.

a.	Direct materials costs to Goods in Process Inventory.
b.	Direct labor costs to Goods in Process Inventory.
c.	Overhead costs to Goods in Process Inventory.
d.	Indirect materials costs to the Factory Overhead account.
e.	Indirect labor costs to the Factory Overhead account.

Required:
1.	Prepare journal entries to assign the above costs.

Explanation:

a. 

Materials costs to Goods in process inventory : ($10,200 + $18,600) = $28,800

 
b.

Labor costs to Goods in process inventory : ($36,000 + $23,800) = $59,800

2.1

Determine the revised balance of the Factory Overhead account after making the entries in part 1 using T-accounts. Determine whether there is any under- or overapplied overhead for the year.

 

2.2

Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold, assuming the amount is not material.

 

 

Explanation:

2.1 

Revised Factory Overhead account
Ending balance from trial balance	$	115,000			debit
Applied to Jobs 402 and 404		(119,600	)		credit
Additional indirect materials		5,600			debit
Additional indirect labor		8,200			debit
Underapplied overhead	$	9,200			debit

 3.

Prepare a revised trial balance.

 

Explanation:

Raw materials inventory

Balance per trial balance	$	80,000
Less: Amounts recorded for Jobs 402 and 404		(28,800	)
Less: Indirect materials		(5,600	)
Ending balance	$	45,600

   

Goods in process inventory

	Job 402			Job 404				Total
Direct materials	$	10,200		$	18,600		$	28,800
Direct labor		36,000			23,800			59,800
Overhead		72,000			47,600			119,600
Total cost	$	118,200		$	90,000		$	208,200

4.1	Prepare an income statement for year 2013.   Explanation: Retained earnings ($271,000 + $85,800) = $356,800