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E17-21 Allocating and adjusting manufacturing overhead
Learning Objectives 3, 5
2. Underallocated by $15,500
The manufacturing records for Bob’s Boats at the end of the 2016 fiscal year show the following
information about manufacturing overhead:
Requirements
1. How many machine hours did Bob’s Boats use in 2016?
2. Was manufacturing overhead overallocated or underallocated for the year, and by how much?
3. Prepare the journal entry to adjust for the underallocated or overallocated manufacturing overhead.
SOLUTION
Requirement 1
Allocated manufacturing
overhead
/
Predetermined overhead
allocation rate
=
Machine hours
E17-22 Completing and selling jobs
Learning Objective 4
4. Gross profit $12,000
June production generated the following activity in Car Chassis Company’s Work-in-Process Inventory
account:
Additionally, Car Chassis has completed Jobs 142 and 143, with total costs of $46,000 and $35,000,
respectively.
Requirements
1. Prepare the journal entry for production completed in June.
2. Open a T-account for Work-in-Process Inventory. Post the journal entry made in Requirement 1.
Compute the ending balance in the Work-in-Process Inventory account on June 30.
3. Prepare the journal entry to record the sale on account of Job 143 for $47,000. Also, prepare the
journal entry to record Cost of Goods Sold for Job 143.
4. What is the gross profit on Job 143?
SOLUTION
Requirement 1
Date
Accounts and Explanation
Debit
Credit
Jun. 30
Finished Goods Inventory ($46,000 + 35,000)
81,000
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Jun. 30
Accounts Receivable
47,000
E17-23 Preparing a schedule of cost of goods manufactured and an income statement
Learning Objective 5
N.I. $90
Shaffer Company has the following information for the year ended December 31, 2016. Use the
information to prepare a schedule of cost of goods manufactured and an income statement. Assume no
indirect materials are used and all amounts are shown in millions.
SOLUTION
SHAFFER COMPANY
Schedule of Cost of Goods Manufactured
Year Ended December 31, 2016
(in millions)
Beginning Work-in-Process Inventory
$ 14
E17-23, cont.
SHAFFER COMPANY
Income Statement
Year Ended December 31, 2016
(in millions)
Sales Revenue
$ 228
Cost of Goods Sold:
E17-24 Preparing job order costing journal entries
Learning Objectives 2, 3, 4, 5
i. Underallocated by $9,200
Journalize the following transactions for Blanche’s Benches:
a. Incurred and paid Web site expenses, $2,800.
b. Incurred manufacturing wages of $10,000, 70% of which was direct labor and 30% of which was
indirect labor.
c. Purchased raw materials on account, $19,000.
d. Used in production: direct materials, $8,000; indirect materials, $3,500.
e. Recorded manufacturing overhead: depreciation on plant, $14,000; plant insurance (previously
paid), $1,300; plant property tax, $3,500 (credit Property Tax Payable).
f. Allocated manufacturing overhead to jobs, 230% of direct labor costs.
g. Completed production on jobs with costs of $36,000.
h. Sold inventory on account, $26,000; cost of goods sold, $12,000.
i. Adjusted for overallocated or underallocated overhead.
SOLUTION
Item
Accounts and Explanation
Debit
Credit
a.
Website Expenses
2,800
Cash
2,800
Manufacturing Overhead
3,500
Property Tax Payable
3,500
f.
Work-in-Process Inventory ($7,000 × 230%)
16,100
Manufacturing Overhead
16,100
g.
Finished Goods Inventory
36,000
Work-in-Process Inventory
36,000
E17-25 Identifying job order costing journal entries
Learning Objectives 2, 3, 4, 5
Analyze the following T-accounts, and describe each lettered transaction. Note that some transactions
may be compound entries.
SOLUTION
a. Purchased materials on account.
E17-26 Determining missing amounts
Learning Objectives 2, 3, 4, 5
Analyze the following T-accounts, and determine the missing amounts.
SOLUTION
a. Requisitioned Raw Materials in the amount of $22,000.
E17-27 Using job order costing in a service company
Learning Objective 6
2. Total cost $57,000
Martin Realtors, a real estate consulting firm, specializes in advising companies on potential new plant
sites. The company uses a job order costing system with a predetermined overhead allocation rate,
computed as a percentage of direct labor costs.
At the beginning of 2016, managing partner Jennifer Martin prepared the following budget for the year:
Root Manufacturing, Inc. is inviting several consultants to bid for work. Jennifer Martin wants to submit
a bid. She estimates that this job will require about 240 direct labor hours.
Requirements
1. Compute Martin Realtors’ (a) hourly direct labor cost rate and (b) predetermined overhead allocation
rate.
2. Compute the predicted cost of the Root Manufacturing job.
3. If Martin wants to earn a profit that equals 55% of the job’s cost, how much should she bid for the
Root Manufacturing job?
SOLUTION
Requirement 1a
Requirement 1b
Indirect costs:
Office rent
$ 390,000
Requirement 2
Direct labor: 240 DLHr × $125 per DLHr
$ 30,000
Requirement 3
Predicted cost
$ 57,000
Problems (Group A)
P17-28A Analyzing cost data, recording completion and sales of jobs
Learning Objectives 1, 2, 4
5. Gross profit $1,000
Brandon Manufacturing makes carrying cases for portable electronic devices. Its costing records yield
the following information:
Requirements
1. Which type of costing system is Brandon using? What piece of data did you base your answer on?
2. Use the dates in the table to identify the status of each job at October 31 and November 30. Compute
Brandon’s account balances at October 31 for Work-in-Process Inventory, Finished Goods
Inventory, and Cost of Goods
Sold. Compute, by job, account balances at November 30 for Work-in-Process Inventory, Finished
Goods Inventory, and Cost of Goods Sold.
3. Prepare journal entries to record the transfer of completed jobs from Work-in-Process Inventory to
Finished Goods Inventory for October and November.
4. Record the sale of Job 3 for $2,400 on account.
5. What is the gross profit for Job 3?
SOLUTION
Requirement 1
Requirement 2
BRANDON MANUFACTURING
Computation of Work-in-Process Inventory, Finished Goods Inventory,
and Cost of Goods Sold for October and November
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Oct. 31
Finished Goods Inventory (Jobs 1 & 2)
2,300
Work-in-Process Inventory
2,300
Requirement 4
Date
Accounts and Explanation
Debit
Credit
Nov. 30
Accounts Receivable
2,400
Sales Revenue
2,400
Requirement 5
The gross profit for Job 3 is:
P17-29A Preparing and using a job cost record to prepare journal entries
Learning Objectives 2, 3, 4
1. Cost per DVD $0.37
Yu Technology Co. manufactures CDs and DVDs for computer software and entertainment companies.
Yu uses job order costing.
On April 2, Yu began production of 5,700 DVDs, Job 423, for Portrait Pictures for $1.40 sales price
per DVD. Yu promised to deliver the DVDs to Portrait Pictures by April 5. Yu incurred the following
costs:
Yu Technology allocates manufacturing overhead to jobs based on the relation between estimated
overhead of $495,000 and estimated direct labor costs of $450,000. Job 423 was completed and shipped
on April 3.
Requirements
1. Prepare a job cost record for Job 423. Calculate the predetermined overhead allocation rate; then
allocate manufacturing overhead to the job.
2. Journalize in summary form the requisition of direct materials and the assignment of direct labor and
the allocation of manufacturing overhead to Job 423. Wages are not yet paid.
3. Journalize completion of the job and the sale of the 5,700 DVDs on account.
SOLUTION
Requirement 1
JOB COST RECORD
Job Number
423
*$495,000 / $450,000 = 110%
**$2,106 / 5,700 DVDs = $0.37 per DVD (rounded)
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Apr. 3
Work-in-Process Inventory
1,182
Raw Materials Inventory
1,182
P17-29A, cont.
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Apr. 3
Finished Goods Inventory
2,106
Work-in-Process Inventory
2,106
P17-30A Accounting for transactions, construction company
Learning Objectives 2, 3, 4
3. WIP Bal. $284,000
a. Purchased materials on account, $440,000.
b. Requisitioned direct materials and used direct labor in construction. Recorded the materials
requisitioned.
Requirements
1. Calculate Sunset’s predetermined overhead allocation rate for the year.
2. Prepare journal entries to record the events in the general journal.
3. Open T-accounts for Work-in-Process Inventory and Finished Goods Inventory. Post the appropriate
entries to these accounts, identifying each entry by letter. Determine the ending account balances,
assuming that the beginning balances were zero.
4. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in
the Work-in-Process Inventory account.
5. Add the cost of the completed house that has not yet been sold, and show that this equals the ending
balance in Finished Goods Inventory.
6. Compute gross profit on the house that was sold. What costs must gross profit cover for Sunset
Construction?
SOLUTION
Requirement 1
Predetermined
Total estimated overhead costs
P17-30A, cont.
Requirement 2
Date
Accounts and Explanation
Debit
Credit
Aug. 31
a.
Raw Materials Inventory
440,000
Accounts Payable
440,000
e.
Construction Overhead
40,000
Cash
34,000
Prepaid Insurance
6,000
f.
Work-in-Process Inventory4
94,000
Construction Overhead
94,000
P17-30A, cont.
Requirement 3
Work-in-Process Inventory
Finished Goods Inventory
Requirement 4
SUNSET CONSTRUCTION, INC.
Reconciliation of Work-in-Process Inventory Subsidiary
and Control Accounts
August 31
Requirement 5
SUNSET CONSTRUCTION, INC.
Reconciliation of Finished Goods Inventory Subsidiary
and Control Accounts
August 31
P17-30A, cont.
Requirement 6
SUNSET CONSTRUCTION, INC.
Gross Profit on Homes Sold in August
P17-31A Accounting for manufacturing overhead
Learning Objectives 3, 5
1. $8.00 per machine hour
Premium Woods manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct
labor are assigned directly to the products. Manufacturing overhead costs are allocated based on
machine hours. Data for 2016 follow:
Requirements
1. Compute the predetermined overhead allocation rate.
2. Post actual and allocated manufacturing overhead to the Manufacturing Overhead T-account.
3. Prepare the journal entry to adjust for underallocated or overallocated overhead.
4. The predetermined overhead allocation rate usually turns out to be inaccurate. Why don’t
accountants just use the actual manufacturing overhead rate?
SOLUTION
Requirement 1
Predetermined
Total estimated overhead costs
Requirement 2
Requirement 3
Date
Accounts and Explanation
Debit
Credit
Manufacturing Overhead
29,500
260,800*
P17-32A Preparing comprehensive accounting for manufacturing transactions
Learning Objectives 2, 3, 4, 5
4. COGM $47,275
5. NI $16,300
Learning Stars produces stars for elementary teachers to reward their students. Learning Stars’ trial
balance on June 1 follows:
