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 follows:
The following additional information is available:
a. Manufacturing overhead is applied to jobs on the basis of direct labour cost.
b. Balances in the inventory accounts at November 30 were as follows:
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.
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.
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
3. What apparent predetermined overhead rate does the company use to assign overhead cost
to jobs? Using this rate, 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.
4. As stated earlier, Job 105 was completed during December. Prepare a journal entry to show the
transfer of this job off of the production line and into the finished goods warehouse. Post the
entry to the appropriate T-accounts.
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?
Apparently, the company uses a predetermined overhead rate of 160% of direct labor cost. This figure can be determined by relating the November applied overhead cost on the job cost sheets to the November direct labor cost shown on these sheets. For example, in the case of Job 105:
The overhead cost applied to each job during December was:
The solution examines T-accounts and journal entries for Kenworth Company.