Question: Pak Co.'s August 31 inventory of raw materials is $16,000. Raw materials purchases in September are $60,000, and factory payroll cost in September is $68,000. Overhead costs incurred in September are: indirect materials, $6,000; indirect labor, $4,000; factory rent, $24,000; factory utilities, $22,000; and factory equipment depreciation, $25,000. The predetermined overhead rate is 130% of direct labor cost. Job 114 is sold for $100,000 cash in September. Costs for the three jobs worked on in September follow.
Required: 1. Determine the total of each production cost incurred for September (direct labor, direct materials, and applied overhead), and the total cost assigned to each job (including the balances from August 31).
2. Prepare journal entries for the month of September to record the following.
a. Materials purchases (on credit), factory payroll (paid in cash), and actual overhead costs including indirect materials and indirect labor. (Factory rent and utilities are paid in cash.)
b. Assignment of direct materials, direct labor, and applied overhead costs to Goods in Process Inventory.
c. Transfer of Jobs 114 and 115 to the Finished Goods Inventory.
d. Cost of Job 114 in the Cost of Goods Sold account.
e. Revenue from the sale of Job 114.
f. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)
3. Prepare a manufacturing statement for September (use a single line presentation for direct materials and show the details of overhead cost).
4. Compute gross profit for September. Show how to present the inventories on the September 30 balance sheet.
Analysis Component
5. The over- or underapplied overhead adjustment is closed to Cost of Goods Sold. Discuss how this adjustment impacts business decision making regarding individual jobs or batches of jobs.