Question

Problem 2-1A Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2017, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $20,200, direct labor $12,120, and manufacturing overhead $16,160. As of January 1, Job No. 49 had been completed at a cost of $90,900 and was part of finished goods inventory. There was a $15,150 balance in the Raw Materials Inventory account. During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $123,220 and $159,580, respectively. The following additional events occurred during the month. 1. Purchased additional raw materials of $90,900 on account. 2. Incurred factory labor costs of $70,700. Of this amount $16,160 related to employer payroll taxes. 3. Incurred manufacturing overhead costs as follows: indirect materials $17,170; indirect labor $20,200; depreciation expense on equipment $12,120; and various other manufacturing overhead costs on account $16,160 Assigned direct materials and direct labor to jobs as follows. 4. Job No 50 51 52 Direct Materials Direct Labor $10,100 39,390 30,300 $5,050 25,250 20,200 Calculate the predetermined overhead rate for 2017, assuming Lott Company estimates total manufacturing overhead costs of $848,400, direct labor costs of $707,000, and direct labor hours of 20,200 for the year. (Round answer to the nearest whole percent, e.g. 25%.) Predetermined overhead rate 120 %

Answer 1

Solution a:

Predetermined Overhead rate = Estimated Overhead / Estimated Direct Labor cost = $848,400/ $707,000 = 120%

Solution b:

Job No. 50
Date	Direct Materials	Direct Labor	Manufacturing Overhead
Beg.	$20,200	$12,120	$16,160
Jan.	$10,100	$5,050	$6,060
	$30,300	$17,170	$22,220
Cost Of Completed job
	Direct Material		$30,300
	Direct Labor		$17,170
	Manufacturing Overhead		$22,220
	Total Cost		$69,690

Job No. 51
Date	Direct Materials	Direct Labor	Manufacturing Overhead
Jan.	$39,390	$25,250	$30,300
	$39,390	$25,250	$30,300
Cost Of Completed job
	Direct Material		$39,390
	Direct Labor		$25,250
	Manufacturing Overhead		$30,300
	Total Cost		$94,940

Job No. 52
Date	Direct Materials	Direct Labor	Manufacturing Overhead
Jan.	$30,300	$20,200	$24,240

Solution c:

Journal Entries
S.No	Particulars	Debit	Credit
1	Material Inventory Dr	$90,900
	To Accounts Payable		$90,900
	(To record purchase of Materials)
2	Factory Labor Dr	$70,700
	To Factory Wages Payable		$54,540
	To Employer Payroll Taxes Payable		$16,160
	(to record factory labor costs)
3	Manufacturing Overhead Dr	$65,650
	To Material Inventory		$17,170
	To Factory Labor		$20,200
	To Accumulated Depreciation		$12,120
	To Accounts Payable		$16,160
	(To record factory overhead costs incurred)

Solution d:

Journal Entries
S.No	Particulars	Debit	Credit
1	WIP Inventory Job no. 50 Dr	$10,100
	WIP Inventory Job no. 51 Dr	$39,390
	WIP Inventory Job no. 52 Dr	$30,300
	To Material Inventory		$79,790
	(To record assignment of Direct material)
2	WIP Inventory Job no. 50 Dr	$5,050
	WIP Inventory Job no. 51 Dr	$25,250
	WIP Inventory Job no. 52 Dr	$20,200
	To Factory Labor		$50,500
	(To record assignment of Direct labor)
3	WIP Inventory Job no. 50 Dr	$6,060
	WIP Inventory Job no. 51 Dr	$30,300
	WIP Inventory Job no. 52 Dr	$24,240
	To Manufacturing Overhead		$60,600
	(To record assignment of Manufacturing Overhead)

Solution e:

Journal Entries
S.No	Particulars	Debit	Credit
1	Finished Goods Inventory Dr	$1,64,630
	To WIP Inventory Job no. 50		$69,690
	To WIP Inventory Job no. 51		$94,940
	(To record Completed jobs)

Solution f:

Journal Entries
S.No	Particulars	Debit	Credit
1	Accounts Receivable Dr (123220+159580)	$2,82,800
	To Sales revenue		$2,82,800
	(To record sale of jobs 49 and 50)
2	Cost of Goods sold ($90900+$69690)	$1,60,590
	To Finished Goods Inventory		$1,60,590
	(To record cost of jobs 49 and 50 sold)

Solution g:

Job 51 is ending Finished Goods inventory.

Finished Goods Inventory = $94,940 Job No. 51

Solution h:

Overhead incurred = $17170+ $20200 + $12120 + $16160 = $65,650

Overhead applied = $60,600

Under-applied Manufacturing overhead = $65,650 - $60,600 = $5,050 under-applied