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Watson Manufacturing Company employs a job order cost accounting system and keeps perpetual inventory records
Watson Manufacturing Company employs a job order cost accounting system and keeps perpetual inventory records. The following transactions occurred in the first month of operations: 1. Direct materials requisitioned during the month: Job 101 $20,000 Job 102 16,000 Job 103 24,000 $60,000 2. Direct labor incurred and charged to jobs during the month was: Job 101 $30,000 Job 102 28,000 Job 103 20,000 $78,000 3. Manufacturing overhead was applied to jobs worked on using a predetermined overhead rate based on 75% of direct labor costs. 4. Actual manufacturing overhead costs incurred during the month amounted to $66,000 5. Job 101 consisting of 1,000 units and Job 103 consisting of 200 units were completed during the month. Instructions (a) Prepare journal entries to record the above transactions. (10 marks) (b) Answer the following questions: (40 marks) 1. How much manufacturing overhead was applied to Job 103 during the month? 2. Compute the unit cost of Jobs 101 and 103. 3. What is the balance in Work In Process Inventory at the end of the month? 4. Determine if manufacturing overhead was under- or overapplied during the month. How much?
Expert Solution
Watson Manufacturing Company
a) Journal Entries:
1.
Description Debit Credit
Job 101 $20,000
Job 102 16,000
Job 103 24,000
Direct materials $60,000
To record direct materials requisitioned during the month.
2.
Job 101 $30,000
Job 102 28,000
Job 103 20,000
Direct labor $78,000
To record direct labor incurred and charged to jobs during the month.
3.
Job 101 $22,500
Job 102 21,000
Job 103 15,000
Manufacturing Overhead $58,500
To record manufacturing overhead costs applied
4.
Manufacturing Overhead $66,000
Cash Account $66,000
To record the payment for manufacturing overhead.
5.
Finished Goods Inventory $131,500
Job 101 $72,500
Job 103 $59,000
To transfer Jobs 101 & 103 to finished goods inventory.
b)
1. Manufacturing overhead applied to job 103 during the month = $15,000
2) Computation of unit cost of Jobs 101 and 103:
Jobs 101 Job 103
Direct materials $20,000 $24,000
Direct labor 30,000 20,000
Manufacturing overhead applied 22,500 15,000
Total production costs $72,500 $59,000
Units produced 1,000 200
Unit costs $72.50 $295
b.3) Work in Process Inventory:
Job 102:
Direct materials $`16,000
Direct labor 28,000
Overhead applied 21,000
Total $65,000
4. Under- or overapplication of Manufacturing Overhead:
Actual overhead expense = $66,000
Applied overhead costs = 58,500
Underapplied by $7,500
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