Question

Langdon Company manufactures custom designed toy sailboats. The company uses a job order costing system. Overhead is applied based on direct labor hours. Estimated overhead for 2018 is $11,840 and the company estimates it will use 7,400 direct labor hours. The following events occurred in March.

The company purchased materials for $800 on account.

The production supervisor requisitioned 15 sheets of fiberglass for constructing the boats. The fiberglass was in stock and originally cost $3 a sheet.

Direct labor on the boats cost $500.

More materials were purchased for $350 on account.

Indirect labor costs were $210.

A utility bill for the boat factory was $230 and was paid in cash.

Additional materials were placed into production that cost $215.

Manufacturing overhead was applied (direct labor during March totaled 500 hours)

One sailboat was completed which cost $325.

The completed sailboat was sold for $750. Record the sale and the cost of sale.

1. Determine the overhead application rate.

2. What is the balance in Materials Inventory at March 31?

3. What is the balance in Work in Process Inventory at March 31?

Answer 1

Solution:

Journal entries
Particulars	Debit	Credit
Accounts Receivable Dr	$750
To Sales Revenue		$750
(To record slaes)
Cost of Goods sold Dr	$325
To Finished goods Inventory		$325
(To record cost of sale)

Solution 1:

Overhead application rate = Estimated overhead / Estimated direct labor hours = $11840 / 7400 = $1.6 per labor hour

Solution 2:

Balance in Matrerial Inventory at March 31 = Beginning Inventory + Purchases - Material used in production

= (15*$3) + ($800 + $350) - ($215 +$45)

= $45 + $1150 - $260

= $935

Solution 3:

Balance in Work in process Inventory at march 31 = Material used in production + Direct Labor + Applied Overhead - Finished goods inventory

= ($215+$45) + $500 + ($1.6*500) - $325

= $260 + $500 + $800 - $325

= $1,235