Managerial Accounting

P2-1A Degelman Company uses a job order cost system and applies overhead to production

on the basis of direct labor costs. On January 1, 2014, Job No. 50 was the only job in

process. The costs incurred prior to January 1 on this job were as follows: direct materials$20,000, direct labor $12,000, and manufacturing overhead $16,000. As of January 1, Job

No. 49 had been completed at a cost of $90,000 and was part of fi nished goods inventory.

There was a $15,000 balance in the Raw Materials Inventory account.

During the month of January, Degelman Company began production on Jobs 51 and

52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the

month for $122,000 and $158,000, respectively. The following additional events occurred

during the month.

1. Purchased additional raw materials of $90,000 on account.

2. Incurred factory labor costs of $70,000. Of this amount $16,000 related to employer

payroll taxes.

3. Incurred manufacturing overhead costs as follows: indirect materials $17,000; indirect

labor $20,000; depreciation expense on equipment $19,000; and various other manufacturing

overhead costs on account $16,000.

4. Assigned direct materials and direct labor to jobs as follows.

Job No. Direct Materials Direct Labor

50 $10,000 $ 5,000

51 39,000 25,000

52 30,000 20,000

Instructions

(a) Calculate the predetermined overhead rate for 2014, assuming Degelman Company

estimates total manufacturing overhead costs of $980,000, direct labor costs of

$700,000, and direct labor hours of 20,000 for the year.

(b) Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job

cost sheet for Job No. 50.

(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 Finished Goods Inventory account at the end of the month?

What does this balance consist of?

(h) What is the amount of over- or underapplied overhead?

Agassi Company uses a job order cost system in each of its three manufacturing

departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in

Department D, direct labor hours in Department E, and machine hours in Department K.

In establishing the predetermined overhead rates for 2014, the following estimates

were made for the year.

Department

D E K

Manufacturing overhead $1,200,000 $1,500,000 $900,000

Direct labor costs $1,500,000 $1,250,000 $450,000

Direct labor hours 100,000 125,000 40,000

Machine hours 400,000 500,000 120,000

During January, the job cost sheets showed the following costs and production data.

Department

D E K

Direct materials used $140,000 $126,000 $78,000

Direct labor costs $120,000 $110,000 $37,500

Manufacturing overhead incurred $ 99,000 $124,000 $79,000

Direct labor hours 8,000 11,000 3,500

Machine hours 34,000 45,000 10,400

Instructions

(a) Compute the predetermined overhead rate for each department.

(b) Compute the total manufacturing costs assigned to jobs in January in each department.

(c) Compute the under- or overapplied overhead for each department at January 31.