Using T-Accounts: Cost Flows in a Job Order Manufacturing Organization
Response to the following problem:
High Country Furniture Company manufactures custom furniture only and uses a job order costing system to accumulate costs. Actual direct materials and direct labor costs are accumulated for each job, but a predetermined overhead rate is used to apply manufacturing overhead costs to individual jobs. Manufacturing overhead is applied on the basis of direct labor hours. In computing a predetermined overhead rate, the controller estimated that manufacturing overhead costs for 2009 would be $80,000 and direct labor hours would be 20,000. The following information is available for the year 2009:
a. Direct materials purchased, $22,000.
b. Direct materials used in production, $19,500.
c. Wages and salaries paid for the year: direct labor (18,000 hours), $117,000; indirect labor, $12,000; sales and administrative salaries, $21,000.
d. Depreciation on machinery and equipment, $9,000.
e. Rent and utilities for building (75% factory), $16,000.
f. Miscellaneous manufacturing overhead, $51,500.
g. Advertising costs, $12,000.
h. Manufacturing overhead is applied to Work-in-Process Inventory.
i. Eighty percent of Work-in-Process Inventory was completed and transferred to Finished Goods Inventory.
Required:
1. Compute the predetermined overhead rate at which manufacturing overhead costs will be applied to jobs.
2. Set up T-accounts and post the transactions.
3. Compute the under- or overapplied manufacturing overhead. Prepare a journal entry to close Manufacturing Overhead and transfer the balance to Cost of Goods Sold.