Question

Vabrium Inc., uses a job-order costing system and a predetermined overhead rate based on machine hours. At the beginning of2018, the company estimated manufacturing overhead for the year would be $240,000 and machine hours would be 8,000.

The following information pertains to September 2018:

Job 10             Job 11            Job 12             Total

Work-in-process, Sept. 1 September production activity:	$16,000	$26,000	$38,000	$80,000
Materials used	$4,000	$4,800	$7,200	$16,000
Direct labor cost	$2,400	$3,600	$4,000	$10,000
Machine hours	400	700	900	2,000
Labor hours	120	180	200	500

Actual manufacturing overhead cost incurred in September was $61,000.

Required:

1. Compute the predetermined overhead application rate.

2.  Determine the total cost associated with each job.

3. If jobs 10 and 12 were completed, prepared the journal entry to move the cost.

4.  If job 10 was delivered to customers that paid $50,000 cash, prepare the journal entries. What is the gross profit for job 10?

5. Assuming no begimring work in process, what is the cost assigned to ending work in process?

6. Assuming no beginning finished goods what is the cost assigned to ending finished goods?

7. How much was overhead over/underapplied?

Answer 1

1. Pre Determined Overhead Application Rate = Predetermined Overhead Cost/ Predetermined Machine Hours

= $240000/8000

= 30 per machine hour

2.

	TOTAL COST
	Particulars	Job 10	Job 11	Job 12
	WIP	16000	26000	38000
	Material	4000	4800	7200
	Labour	2400	3600	4000
	Absorbed Overhead	12000	21000	27000
	Total Cost	34400	55400	76200

3. Journal Entry:

For Job 10:

Finished Stock A/c dr. $34400

To WIP $16000

To Material $4000

To Labour $2400

To Absorbed Overhead $12000

For Job 12:

Finished Stock A/c dr. $55400

To WIP $26000

To Material $4800

To Labour $3600

To Absorbed Overhead $21000

4. Journal Entry for Sales

a. Cash A/c dr $50000

To Sales A/c $50000

b. Sales A/c $50000

To Gross Profit $15600

To Finised Stock A/c $34400

Gross Profit = $15600