Q17-35PGB - Horngren'S Financial And Managerial Accounting

Question

Ye Technology Co. manufactures DVDs for computer software and entertainment companies. Ye uses job order costing.

On November 2, Ye began production of 5,200 DVDs, Job 423, for Prototype

Pictures for \(1.70 sales price per DVD. Ye promised to deliver the DVDs to Prototype by November 5. Ye incurred the following direct costs:

Date	Labor time record no.	Description	Amount
11/02	655	10 hours @ 16 per hour	\)160
11/03	656	20 hours @13 per hour	260

Date	Material requisition no.	Description	Amount
11/02	63	31 lbs. polycarbonate plastic @ 11 per lb.	\(341
11/02	64	25 lbs. acrylic plastic @ \)28 per lb.	700
11/03	74	3 lbs. refined alluminium @ 42 per lb.	126

Ye Technology allocates manufacturing overhead to jobs based on the relation

between estimated overhead of \(550,000 and estimated direct labor costs of \)440,000. Job 423 was completed and shipped on November 3.

Requirements

1. Prepare a job cost record for Job 423. Calculate the predetermined overhead allocation rate (round to two decimal places); 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 5,200 DVDs on account.

Step-by-Step Solution

Answer

1. The unit cost of the product as per the job cost record for job no. is $0.41 and the predetermined overhead allocation rate is 125% and the amount of allocated overhead to the job is $525.

 

2. Journal entries to record the requisition of direct materials and the assignment of direct labot and the allocation of manufacturing overhead

Date	Particulars	Debit ($)	Credit ($)
1.	Work-in-process inventory	1,167
	Raw material inventory		1,167
2.	Work-in-process inventory	420
	Wages payable		420
3.	Work-in-process inventory	525
	Manufacturing overhead		525

3. Journal entries to record the completion of job and sale of job

Date	Particulars	Debit ($)	Credit ($)
1.	Finished goods inventory	2,112
	Work-in-process inventory		2,112
2.	Accounts receivable (5,200 x $1.70)	8,840
	Sales revenue		8,840
3.	Cost of goods sold	2,112
	Finished goods inventory		2,112

 

Predetermined overhead allocation rate

The predetermined overhead allocation rate is an allocation rate which the company estimates before starting the manufacturing process. It is based on budgeted data.

Job cost record of Job no. 423

Predetermined overhead allocation rate

$$\begin{gathered} Predermined overhead allocation rate=\frac{Estimated Overhead}{Estimated direct labor \cos t} \\ =\frac{\$550,000}{\$440,000} \\ =125\% \end{gathered}$$

Allocated manufacturing overhead cost

$$\begin{gathered} Allocated manufacturing overhead \cos t=Predetermined overhead \\ allocation rate\times Actual direct labor \cos t \\ =125\%\times \$420 \\ =\$525 \end{gathered}$$

The raw material inventory used in manufacturing process

$$\begin{gathered} Raw material inventory used =Cost of material requisition no. 63+ \\ Cost of material requisition no. 64+ \\ Cost of material requisition no 74 \\ =\$341+\$700+\$126 \\ =\$1,167 \end{gathered}$$

The wages incurred in manufacturing

$$\begin{gathered} Wages=Labor \cos t of record no. 655+Labor \cos t of record no. 656 \\ =\$160+\$260 \\ =\$420 \end{gathered}$$

Cost of manufacturing

$$\begin{gathered} Cost of manufacturing=Direct Material+Direct Labor+Manufacturing overhead \\ =\$1,167+\$420+\$525 \\ =\$2112 \end{gathered}$$