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Elite Manufacturing: overhead rates, manufacturing costs, journal entries

Elite Manufacturing uses a job order cost system and applies overhead to production
on the basis of direct labor hours. On January 1, 2005, Job No. 25 was the only
job in process. The costs incurred prior to January 1 on this job were as follows: direct
materials $10,000; direct labor $6,000; and manufacturing overhead $9,000. Job No. 23
had been completed at a cost of $45,000 and was part of finished goods inventory. There
was a $5,000 balance in the Raw Materials Inventory account.

During the month of January, the company began production on Jobs 26 and 27, and
completed Jobs 25 and 26. Jobs 23 and 25 were sold on account during the month for
$67,000 and $74,000, respectively. The following additional events occurred during the
month.

1. Purchased additional raw materials of $45,000 on account.
2. Incurred factory labor costs of $35,500. Of this amount $6,500 related to employer
payroll taxes.
3. Incurred manufacturing overhead costs as follows: indirect materials $10,000; indirect
labor $7,500; depreciation expense $12,000; and various other manufacturing overhead
costs on account $6,000.
4. Assigned direct materials and direct labor to jobs as follows.
5. The company uses direct labor hours as the activity base to assign overhead. Direct
labor hours incurred on each job were as follows: Job No. 25, 200; Job No. 26, 800; and
Job No. 27, 600.

Job No. Direct Materials Direct Labor
25 $5,000 $3,000
26 $20,000 12,000
27 $15,000 9,000

Instructions

(a) Calculate the predetermined overhead rate for the year 2005, assuming Elite
Manufacturing estimates total manufacturing overhead costs of $400,000, direct
labor costs of $300,000, and direct labor hours of 20,000 for the year.
(b) Open job cost sheets for Jobs 25, 26, and 27. Enter the January 1 balances on the job
cost sheet for Job No. 25.
(c) Prepare the journal entries to record the purchase of raw materials, the factory labor
costs incurred, and the manufacturing overhead costs incurred during the month of
January.
(d) Prepare the journal entries to record the assignment of direct materials, direct labor,
and manufacturing overhead costs to production. In assigning manufacturing overhead
costs, use the overhead rate calculated in (a). Post all costs to the job cost sheets
as necessary.
(e) Total the job cost sheets for any job(s) completed during the month. Prepare the journal
entry (or entries) to record the completion of any job(s) during the month.
(f) Prepare the journal entry (or entries) to record the sale of any job(s) during the
month.
(g) What is the balance in the Work in Process Inventory account at the end of the
month? What does this balance consist of?
(h) What is the amount of over- or underapplied overhead?

Solution Summary

The solution is a comprehensive discussion of the questions including calculations as needed to explain the answers.

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