Problem:
Langley uses a job costing system. At the beginning of June, two orders were in process as follows: Order 88 Order 105 Direct materials $1000 $900 Direct labour $1200 200 Overhead allocated 1800 300 There was no inventory in finished goods on 1 June. During June, orders numbered 106 to 120 were put into process. Direct materials requirements amounted to $13 000, direct labour costs for the month were $20 000 and actual manufacturing overhead recorded during the month amounted to $28 000. The only order in process at the end of June was order 120, and the costs incurred for this order were $1150 of direct materials and $1000 of direct labour. In addition, order 118, which was 100 per cent complete, was still on hand as of 30 June. Total costs for this order were $3300. The entity's overhead allocation rate in June was the same as that used in May and is based on labour cost. Required (a) Prepare journal entries (with supporting calculations) to record the cost of goods manufactured, the cost of sales and the closing of the over applied or under applied overhead to cost of sales. (b) Describe the two different approaches to closing over applied or under applied overhead at the end of the period. How do you choose an appropriate method?