Question

Mountain Manufacturing Company produces custom stamped metal parts for a variety of customers in Western Canada. During January, the company had two jobs in process. Job A was an order for 1,200 stamped parts and was started in December. Job A had $12,000 of manufacturing costs already accumulated on January 1. Job B was an order for 1,000 stamped parts and was started in January.

The company used a job-order costing system. Total manufacturing overhead for the year was estimated to be $576,000. Mountain Manufacturing uses direct labour-hours as the allocation base to establish its predetermined overhead rate. A total of 19,200 direct labour-hours are expected to be worked during the year. On January 1, the start of the company’s fiscal year, inventory account balances were as follows:

Raw Materials	$15,000
Work in Process	$12,000
Finished Goods	$10,000

During the month of January, the following transactions were completed:

1. Raw materials were purchased for $30,000.
2. Raw materials were requisitioned for use in production in the amount of $35,000. Of this amount, $25,000 was related to manufacturing ($5,000 for Job A and $20,000 for Job B) and the rest were indirect materials.
3. In January, $32,000 of direct labour ($7,000 for Job A and $25,000 for Job B). In addition, $2,000 of indirect labour costs were incurred.
4. In January, the company incurred the following general factory costs: Utilities expense of $8,000, rent on factory equipment of $8,000, and insurance costs of $1,900.
5. The company recognized $10,000 in depreciation on factory equipment.
6. The company applied manufacturing overhead to Job A and Job B. A total of 350 direct labour-hours were spent completing Job A and 1,250 direct labour-hours were recorded for Job B.
7. Administrative salaries of $30,000 were paid in January.
8. Selling expenses totalled $6,000 in January.
9. Job A was completed in January. The completed cost of Job A according to the job cost sheet was $34,500. Job B remains in process at the end of January.
10. Sales of all 1,200 units in Job A were recorded on account in the amount of $48,300 in January.

2. Prepare T-accounts. Determine ending balances in the inventory accounts and in the Manufacturing Overhead account. Beg. Bal 0 Beg. Bal. Accounts Receivable 0 0 48,300 48,300 Raw Materials 15,000 30,000 10,000 0 35,000 b. End. Bal. End. Bal. Beg. Bal. Beg. Bal. 0 34,500 Work in Process 12,000 25,000 32,000 48,000 82,500 Finished Goods 10,000 34,500 34.500 10,000 End. Bal. 07 End. Bal. Manufacturing Overhead Accounts Payable Beg. Bal. Beg. Bal. 48,000 t. 10,000 2,000 17,900 10,000 30,000 a. 17,900 d. 6,000 h d. 01 End. Bal. 8,100 End. Bal. 53,900

4a. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account.

Manufacturing Overhead	$8,100
Work in Process Inventory		?
Cost of Goods Sold		?

Unsure how to do 4a.. all values in the T accounts are correct..

Answer 1

The journal entry to dispose off any balance in the Manufacturing Overhead account.

Account	Debit	Credit
Manufacturing Overhead	$8,100
Cost of Goods Sold		$3387.27
Work in Process Inventory		$4712.73

Explanation

Any amount of under or over applied manufacturing overheads is closed into Cost of Goods Sold and WIP account. In the given case too, Overheads incurred = $39900 and Overheads applied = $48000. Hence, over applied overheads = 48000-39900 = $8100.

Over applied Overheads can be allocated in the ratio of actual overheads allocated:

WIP = 48000

COGS = 34500

Over applied overheads for COGS = (34500/(82500) * 8100 = $3387.27

Over applied overheads for WIP = (48000/82500)*8100 = $4712.73

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