Question

Kenworth Company uses a job-order costing system. Only three jobs—Job 105, Job 106, and Job 107—were worked on during November and December. Job 105 was completed on December 10; the other two jobs were still in production on December 31, the end of the company’s operating year. Data from the job cost sheets of the three jobs follow:

	Job Cost Sheet
	Job 105			Job 106			Job 107
November costs incurred:
Direct materials	$	16,500		$	9,300		$	0
Direct labour	$	13,000		$	7,000		$	0
Manufacturing overhead	$	20,800		$	11,200		$	0
December costs incurred:
Direct materials	$	0		$	8,200		$	21,300
Direct labour	$	4,000		$	6,000		$	10,000
Manufacturing overhead		?			?			?

The following additional information is available:

1. Manufacturing overhead is applied to jobs on the basis of direct labour cost.
2. Balances in the inventory accounts at November 30 were as follows:

  

Raw Materials	$	40,000
Work in Process		?
Finished Goods	$	85,000

Required:

1. Prepare T-accounts for Raw Materials, Work in Process, Finished Goods, and Manufacturing Overhead. Enter the November 30 inventory balances given above; in the case of Work in Process, compute the November 30 balance and enter it into the Work in Process T-account.

2. Prepare journal entries for December as follows:

a. Prepare an entry to record the issue of materials into production and post the entry to appropriate T-accounts. (In the case of direct materials, it is not necessary to make a separate entry for each job.) Indirect materials used during December totalled $4,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

   

b. Prepare an entry to record the incurrence of labour cost, and post the entry to appropriate T-accounts. (In the case of direct labour cost, it is not necessary to make a separate entry for each job.) Indirect labour cost totalled $8,000 for December. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Prepare an entry to record the incurrence of $19,000 in various actual manufacturing overhead costs for December (credit Accounts Payable). Post this entry to the appropriate T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3-a. What apparent predetermined overhead rate does the company use to assign overhead cost to jobs?

3-b. Prepare a journal entry to record the application of overhead cost to jobs for December (it is not necessary to make a separate entry for each job). Post this entry to the appropriate T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. As stated earlier, Job 105 was completed during December. Prepare a journal entry to show the transfer of this job off the production line and into the finished goods warehouse. Post the entry to the appropriate T-accounts. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

5. Determine the balance at December 31 in the Work in Process inventory account. How much of this balance consists of costs charged to Job 106? Job 107?

Answer 1

	overhead rate = 20800/13000=			160%
				Job cost sheet
					Job 105	Job 106	Job 107	total
	November costs incurred:
	Direct materials				16,500	9,300	0	25,800
	Direct labor				13,000	7,000	0	20,000
	Manufacturing overhead				20,800	11,200	0	32,000
	Total Beginning WIP				50,300	27,500	0	77,800
	December costs incurred:
	Direct materials				0	8,200	21,300	29,500
	Direct labor				4,000	6,000	10,000	20,000
	Manufacturing overhead				6400	9600	16000	32,000
	cost added during december				10,400	23,800	47,300	81,500
	total cost of job				60,700	51,300	47,300	159,300
1)	T-Accounts
	Raw materials					Work in progress
	Beg.bal	40,000				Beg bal	77,800
			29,500	a)		a)	29,500	60,700	e)
			4,000	a)		b)	20,000
	End bal	6500				d)	32,000
						End bal	98,600
	Finished goods					Manufacturing overhead
	Beg.Bal	85,000				Beg.Bal	0
	e)	60,700				a)	4,000	32,000	d)
						b)	8,000
	End bal					c)	19,000
						End bal		1,000
	Salaries & wages payable					Accounts payable
	Beg bal					Beg bal
			28,000	b)				19,000	c)
	End bal					end bal
2)	Event	General Journl				Debit	Credit
a)	1)	Work in process				29,500
		Manufacturing overhead				4,000
		Raw Materials					33,500
b)	2)	Work in process				20,000
		Manufacturing overhead				8,000
		Salaries & wages payable					28,000
c)	3)	Manufacturing overhead				19,000
		Accounts payable					19,000
3a)	predetermined overhead rate			160%
3b)		Work in process				32,000
		Manufacturing ovehead					32,000
4)		Finished goods				60,700
		Work in process inventory					60,700
5)				Job 106	job 107	total
	Direct materials			17,500	21,300	38,800
	direct labor			13,000	10,000	23,000
	manufacturing overhead			20,800	16000	36,800
	Total cost			51,300	47,300	98,600