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During January 2020, LimeCo recorded the following transactions: a
During January 2020, LimeCo recorded the following transactions: a. Purchased materials on account, $297,000. b. Paid for the materials purchased in previous transaction. c. Started the production with $300,000 worth of materials, $20,000 of which was direct materials. d. Manufacturing wages incurred totaled $40,000, of which 90% was direct labor. e. Used more indirect materials, worth $2,000. Requirements: 1. Journalize the above transactions. 2. What is the balance of Manufacturing Overhead account? 3. At the beginning of 2020, LimeCo estimated to have Manufacturing overheads totaling to $312,000 and total estimated direct labor cost was $617,000. If direct labor was used as allocation base what was the actual Manufacturing Overhead for the period? Were manufacturing overheads underallocated or overallocated? By how much? Journalize the necessary transaction to deal with the underallocation/overallocation.
Expert Solution
| Lime Co. | |||
| Date | Answer 1- Journal entry | Debit $ | Credit $ |
| a. | Raw Materials | 2,97,000.00 | |
| Accounts Payable | 2,97,000.00 | ||
| b. | Accounts Payable | 2,97,000.00 | |
| Cash | 2,97,000.00 | ||
| c. | Work in Process | 3,00,000.00 | |
| Raw Materials | 20,000.00 | ||
| Manufacturing Overhead | 2,80,000.00 | ||
| d. | Work in Process | 40,000.00 | |
| Wages | 36,000.00 | ||
| Manufacturing Overhead | 4,000.00 | ||
| e. | Work in Process | 2,000.00 | |
| Manufacturing Overhead | 2,000.00 | ||
| Answer 2 | Amount $ | ||
| Indirect materials in C | 2,80,000.00 | ||
| Indirect wages in D | 4,000.00 | ||
| Indirect materials in E | 2,000.00 | ||
| Balance in manufacturing overhead | 2,86,000.00 | ||
| Answer 3 | Amount $ | ||
| Estimated manufacturing overhead | 3,12,000.00 | ||
| Estimated direct labour cost | 6,17,000.00 | ||
| Overhead allocation rate | 50.57% | ||
| Actual direct labour cost | 36,000.00 | ||
| Overhead allocated | 18,204.00 | ||
| Balance in manufacturing overhead | 2,86,000.00 | ||
| Overhead under allocated | 2,67,796.00 | ||
| Journal entry | Debit $ | Credit $ | |
| Cost of goods sold | 2,67,796.00 | ||
| Manufacturing overhead | 2,67,796.00 |
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