Journal Entries and Accounting for Overhead Watkins Machinery Company uses a normal job costing system. The company has the following partial trial balance information for March, the last month of its fiscal year:
Materials inventory (X, $9,000; Y, $6,000; Indirect
materials, $15,000) $ 30,000
Work-in-process inventory (this is Job 101) 15,600
Finished goods inventory (this is Job 100) 26,000
These transactions relate to the month of March:
Purchased direct materials and indirect materials with the following summary of receiving reports:
Material X $ 30,000
Material Y 30,000
Indirect materials 15,000
Total $ 75,000
Issued direct materials and indirect materials with this summary of requisitions:
Job 101 Job 102 Total
Material X $ 15,000 $ 9,000 $ 24,000
Material Y 12,000 3,000 15,000
Subtotal $ 27,000 $ 12,000 $ 39,000
Indirect materials 24,000
Total $ 63,000
Factory labor incurred is summarized by these time tickets:
Job 101 $ 31,200
Job 102 20,800
Indirect labor 15,000
Total $ 67,000
Factory utilities, factory depreciation, and factory insurance incurred is summarized as follows:
Utilities $ 1,500
Depreciation 45,000
Insurance 7,500
Total $ 54,000
e. Factory overhead costs were applied to jobs at the predetermined rate of $15 per machine hour. Job 101 incurred 5,400 machine hours; Job 102 used 3,600 machine hours
f. Job 101 was completed; Job 102 was still in process at the end of March.
g. Job 100 and Job 101 were shipped to customers during March. Both jobs had gross margins of 20% based on manufacturing cost.
h. The company closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the end of March.
Required: 2. Compute the ending balance of the Work-in-process inventory account. Compute the ending balance of the Work-in-process inventory account. Direct materials Direct labor Factory overhead applied Total ending balance 3. Compute the overhead variance and indicate whether it is overapplied or underapplied Compute the overhead variance and indicate whether it is overapplied or underapplied. Actual factory overhead Indirect materials Indirect labor Utilities Depreciation Insurance Less: Applied factory overhead Underapplied factory overhead 4. Close the overhead variance to the Cost of goods sold account. Journal entry worksheet To record the disposition of underapplied factory overhead by closing the Factory overhead account to the Cost of goods sold account. Note: Enter debits before credits. Transaction General Journal Debit Credit

Watkins Machinery Company

1. The ending balance of work-in-process inventory:

= Job 102 = $86,800

2. Total ending balance = $180,800

3. Overhead variance =     $63,000 (92,000 - 155,000) overapplied

4. Closing the overhead variance to the Cost of goods sold:

Cost of goods sold:

Job 100       $26,000

Job 101         154,800

Total                                       $180,800

less overapplied overhead     (63,000)

Adjusted cost of goods sold $117,800

Journal entry:

Debit Overapplied overhead $63,000

Credit Cost of goods sold $63,000

To close the factory overhead account to the cost of goods sold.

Adjusted cost of goods sold $117,800

Explanation:

Partial Trial Balance for March:

Materials inventory

(X, $9,000; Y, $6,000; Indirect  materials, $15,000) $ 30,000

Work-in-process inventory (this is Job 101)                   15,600

Finished goods inventory (this is Job 100)                   26,000

Materials inventory:      X              Y           Indirect             Total

Beginning               $9,000      $6,000     $15,000        $ 30,000

Purchase                30,000       30,000       15,000           75,000

Issue                       24,000       15,000       24,000          63,000

Ending inventory  $15,000     $21,000      $6,000        $42,000

Issue of Materials:

                                   Job 101     Job 102      Total

Material X                $ 15,000      $ 9,000   $ 24,000

Material Y                   12,000          3,000       15,000

Subtotal                  $ 27,000     $ 12,000   $ 39,000

Indirect materials                                            24,000

Total                                                              $ 63,000

                                          Job 100       Job 101       Job 102      Total

Finished goods                 26,000

WIP                                                        15,600

Direct materials                                   27,000       12,000     $39,000

Factory labor                                        31,200      20,800       52,000

Allocation of factory overheads:         81,000      54,000      135,000

Cost of goods / WIP       $26,000  $154,800    $86,800    $

Cost of goods sold:

Job 100       $26,000

Job 101         154,800

Total                                       $180,800

less overapplied overhead     (63,000)

Adjusted cost of goods sold $117,800

Machine hours incurred                5,400 hrs  3,600 hrs   9,000 hrs

Predetermined rate = $15 per machine hour        

Factory overheads:

Indirect materials                                                                23,000

Indirect labor                                                                       15,000

Factory expenses:

Utilities           $ 1,500

Depreciation  45,000

Insurance         7,500                                                        54,000                                                                              

Total factory overheads                                                 $92,000

Factory overhead applied                                               155,000

Factory overhead overapplied                                         63,000

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