Question

Directions: Prepare the entries for the following transactions.

1. Labor was incurred as follows:
   • Direct labor of $217,000
   • Indirect labor of $300,000
   • Accountants salaries $100,000
2. Recorded depreciation as follows:
   • On computer used by line manager in plant of $10,000
   • On computer used by the accountant $5,000

c. Allocated Manufacturing overhead in the amount of $500,000erm

d. In the text they used the term control after most of the accounts you used. The term can be ignored in your answers because it is implied. What does this term mean. (use paragraph form in your answer – not bullets.) Also explain.

e. Where does manufacturing overhead fit in the published financial statements (explain)?

Answer 1

Credit No Account title and explanation a Work in process Inventory Manufacturing overheads Office Salaries expense Salaries and wages payable Debit $217,000 $300,000 $100,000 $617,000 b Manufacturing overheads Depreciation expense Accumulated Depreciation - Computer $10,000 $5,000 $15,000 c $500,000 Work in process Inventory Manufacturing overheads $500,000 d When there are 2 separate books of account maintained control accounts are used to ensure the balances in both books of account are reconciled The cost ledger control accounts are used as link between financial and cost records e It appears in the Cost of goods sold in Income statement and Inventory in Balance Sheet Manufacturing overhead is a product cost. It is indirect cost incurred in production of goods The published financial statements are prepared based on absorption costing basis Hence manufacturing overheads is part of product cost and charged to Cost of goods sold for units sold during he period Manufacturing overheads relating to Inventory will be in Balance sheet under the head Current Assets- Finished goods inventory