Question

Tyler Tooling Company uses a job order cost system with overhead applied to products on the basis of machine hours. For the upcoming year, the company estimated its total manufacturing overhead cost at $234,840 and total machine hours at 61,800. During the first month of operations, the company worked on three jobs and recorded the following actual direct materials cost, direct labor cost, and machine hours for each job:    

Job 101 Job 102 Job 103 Total
Direct materials used $ 11,900 $ 7,900 $ 5,200 $ 25,000
Direct labor $ 17,300 $ 5,000 $ 5,400 $ 27,700
Machine hours 1,600 hours 2,500 hours 800 hours 4,900 hours


Job 101 was completed and sold for $50,800.
Job 102 was completed but not sold.
Job 103 is still in process.

Actual overhead costs recorded during the first month of operations totaled $14,020.

Required:

1. Prepare a journal entry showing the transfer of Job 102 into Finished Goods Inventory upon its completion.

2. Prepare the journal entries to recognize the sales revenue and cost of goods sold for Job 101.

3. Prepare the journal entry to transfer the balance of the Manufacturing Overhead account to Cost of Goods Sold.

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Answer #1

Predetermined overhead rate= Estimated total manufacturing overhead/Estimated machine hours

= $234840/61800= $3.80 per MH

No. Account titles and explanation Debit Credit
1) Finished goods inventory ($7900+5000+2500*$3.80) $22400
Work in process inventory $22400
(To record transferred of Job 102 to finished goods inventory from work in process)
2) Cash $50800
Sales revenue $50800
(To record sale revenue of Job 101)
Cost of goods sold ($11900+17300+1600*$3.80) $35280
Finished goods inventory $35280
(To record cost of goods sold of Job 101)
3) Manufacturing overhead $4600
Cost of goods sold $4600
(To record manufacturing overhead overapplied)

Manufacturing overhead applied= 4900 hours*$3.80 per MH= $18620

Overapplied or underapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $18620-14020= $4600 overapplied

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