Question

Terminus Company completed two jobs during January, Job Z-15 and Job W-20. Completing Job Z-15 required an additional $2,720 in direct labour and completing Job W-20 required $1,296 in direct materials and $8,000 in direct labour.

The details of the two jobs in process on January 1 are as follows:

	Job Z-15	Job W-20
Direct Materials	$ 2,038	$ 1,280
Direct Labour	768	3,360

On January 1 the Materials Inventory balance was $11,040, and $1,392 worth of materials was purchased during the month. Indirect materials of $672 were withdrawn from materials inventory.

Terminus allocates overhead to jobs at an estimated rate of 50 percent of direct labour costs. Terminus used a total of $3,768 of direct materials (excluding the $672 indirect materials) during the period and total direct labour costs during the month were $10,720. In addition, during the month they incurred 2,450 in utilities costs, 1,200 in depreciation expenses and $3,600 in rent.

Required

1. Compute the total costs to manufacture Job Z-15 and Job W-20.
2. During the month of January was Terminus’ overhead over or under applied and by how much? Assume the amount of under/over applied overhead is insignificant. Prepare the journal entry to write off the overhead assuming Terminus uses the two account approach for overhead.

Answer 1

	Total cost:
				Job Z-15	Job W-20
	Direct materials			2038	2576
					(1280+1296)
	Direct labour		a	3488	11360
				(768+2720)	(3360+8000)
	Overhead applied		a*50%	1744	5680
	Total cost			7270	19616
	Total overhead applied in January=Total direct labor cost for Jan*50%=10720*50%=$ 5360
	Actual overhead:
				$
	Indirect materials			672
	Utilities cost			2450
	Depreciation expense			1200
	Rent			3600
	Total			7922
	Overhead applied < Actual overhead,
	Hence, overhead is under-applied.
	Under-applied overhead=7922-5360=$ 2562
	journal entry to write off the overhead:
	Date	Accounts			Debit	Credit
	Jan 31.	Cost of goods sold			2562
		Manufacturing overhead				2562