Chapter 2

Problem 1

Garcia Manufacturing uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2008, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $22,000, direct labor $13,200, and manufacturing overhead $17,600. As of January 1, Job No. 49 had been completed at a cost of $99,000 and was part of finished goods inventory. There was a $16,500 balance in the Raw Materials Inventory account.

During the month of January, Garcia Manufacturing began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $134,200 and $173,800, respectively. The following additional events occurred during the month.

1. Purchased additional raw materials of $99,000 on account.

2. Incurred factory labor costs of $71,500. Of this amount $17,600 related to employer payroll taxes.

3. Incurred manufacturing overhead costs as follows: indirect materials $18,700; indirect labor $16,500; depreciation expense $20,900, and various other manufacturing overhead costs on account $22,000.

4. Assigned direct materials and direct labor to jobs as follows.

Job No. Direct Materials Direct Labor

50 $11,000 $ 5,500

51 42,900 27,500

52 33,000 22,000

a) Calculate the predetermined overhead rate for 2008, assuming Garcia Manufacturing estimates total manufacturing overhead costs of $1,155,000, direct labor costs of $770,000, and direct labor hours of 22,000 for the year.

b) Prepare the journal entries to record the purchase of raw materials, the factory labor costs incurred, and the manufacturing overhead costs incurred during the month of January.

c) Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in first part of question.

d) Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job No. 50. Post all costs to the job cost sheets as necessary. Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or entries) to record the completion of any job(s) during the month.

e) Prepare the journal entry (or entries) to record the sale of any job(s) during the month.

f) What is the balance in Finished Goods Inventory at the end of the month and what does that balance consist of?

g) What is the amount of under or over-applied overhead?