Question

Rock industries allocates manufacturing overhead at a predetermined rate of 160% of direct labor cost. Any overallocated or underallocated overhead is closed to the cost of goods sold at the end of the month. Below is information on job 205 that was in process at the end of the month of October.

Direct materials $4,000
Direct labor $3,000
Allocated manufacturing overhead $4,800

Jobs 206, 207, and 208 were started in November. Direct materials that were used in November were $26,000 and direct labor costs were $21,000. For the month of November, actual manufacturing overhead was $32,000. The only job still in process on the last day of November was job 104withthe following costs: $3,000 for direct materials and $1,500 for direct labor.

Required:
a. Calculate the cost of goods manufacturered for November.
b. Prepare the journal entries to record the current month activity.
c. Calculate the amount of overallocated or underallocated manufacturing overhead. Be sure to label the answer as either overallocated or underallocated.
d. Prepare the accounting entries to close the overallocated or underallocated manufacturing overhead on November 30?

Answer 1

a. The cost of goods manufactured for November is $79,000. b. Journal entries to record the current month activity include debiting and crediting the work in process inventory for direct materials, direct labor, and manufacturing overhead. c. The manufacturing overhead is overallocated by $3,520.

Step-by-step explanation:

a. To calculate the cost of goods manufactured for November, we need to determine the total manufacturing costs incurred during the month. This includes direct materials, direct labor, and manufacturing overhead. Using the information provided:

Total manufacturing costs = Direct materials + Direct labor + Manufacturing overhead

= $26,000 + $21,000 + $32,000

= $79,000

b. The journal entries to record the current month activity are:

1. Debit Work in Process inventory and Credit Direct materials for $26,000.
2. Debit Work in Process inventory and Credit Direct labor for $21,000.
3. Debit Work in Process inventory and Credit Manufacturing overhead for $32,000.

c. To calculate the amount of overallocated or underallocated manufacturing overhead, we need to compare the allocated manufacturing overhead with the actual manufacturing overhead:

Allocated manufacturing overhead = Predetermined rate * Direct labor cost

= 160% * ($21,000 + $1,500)

= $35,520

Actual manufacturing overhead = $32,000

Overallocated manufacturing overhead = Allocated manufacturing overhead - Actual manufacturing overhead

= $35,520 - $32,000

= $3,520

Therefore, the manufacturing overhead is overallocated by $3,520.

d. The accounting entries to close the overallocated manufacturing overhead on November 30 are:

1. Debit Cost of Goods Sold and Credit Manufacturing overhead for $3,520.

Answer 2

Cost of goods manufactured for November.

Manufacturing Schedule Cost

Beginning Inventory (Job 205) $11,800

Direct materials $26,000

Direct labor costs $21,000

Applied Overheads ($21,000 x 160%) $33,600

Less Ending Inventory (Job 104) ($6,900)

Cost of Goods Manufactured $85,500

Journal entries to record the current month activity.

Debit : Work In Process $80,600

Credit : Direct materials $26,000

Credit : Direct labor costs $21,000

Credit : Applied Overheads ($21,000 x 160%) $33,600

Calculation of amount of over allocated or under allocated manufacturing overhead

Actual Manufacturing Overheads = $32,000

Applied Manufacturing Overheads = $33,600

Therefore, Overheads Over-applied = $1,600