Week 3 Peter’s Pet Toys uses a JOB ORDER COSTING system. It applies manufacturing overhead cost to jobs on the basis of direct labor hours. Past experience has shown this allocation base to have a good correlation with overhead.
At the start of 2016, on Jan 1, estimates were for 10,000 direct labor hours at $20/hour. Total manufacturing overhead was estimated to be $140,000. (60 PTS)
A) If you calculate the predetermined overhead rate first, save it for transaction #4. Record the journal entries below in correct format. A General Journal has been provided if you wish to use it. Use whole dollars only. No cents.
1. Raw materials were bought for $820,000 cash.
2. Cleaning Supplies were bought for $45,000 cash.
3. Raw materials requisitioned to be put into production were $745,000
4. Put into use in both the manufacturing factory and office were $20,000 of cleaning supplies; the expense was split evenly between the two facilities.
5. The payroll was:
Administrative Salaries…………..$182,000
Sales Commissions Exp…… …….$167,000
Direct Labor………………………$222,200 at $22/hour, 10,100 direct labor hours
Indirect Labor…………………….$92,000
All salaries and wages were recorded and paid in cash during the year.
6. Manufacturing Overhead was applied.
7. The advertising agency was owed $130,000, to be paid the following year.
8. Pet toys that were completed were transferred from Work in Process to Finished Goods, $600,000.
9. For the year, Sales totaled $980,000. All sales were on account to credit customers. Cost of Goods Sold was $398,000.
10. Depreciation of $84,000 was recorded for the year, one quarter on the manufacturing plant three quarters for the administrative office.
11. Insurance for the period was $26,000. 80% was allocated to the manufacturing facilities and 20% was allocated to the administrative office. Cash was paid for the insurance, which was expensed. The company does not use prepaid insurance.
12. Peter’s Pet Toys pays an income tax rate of 18% on Net Operating Income. The taxes were paid before year end in cash. The entry to record income tax expense is best be recorded when the income statement is complete.
B) The following select accounts have these beginning balances on Jan 1. This is not a complete listing of ledger beginning balances for Peter’s Pet Toys.
Cash, $4,000,000
Raw Materials Inventory, $10,000
Work in Process Inventory, $2,000
Finished Goods Inventory, $140,000
If you wish to use it, a partial general ledger has been provided in Excel (FINAL PROJ 3 OPTIONAL LEDGER) so that you may post the journal entries to determine account balances. You are not required to submit the ledger. There are no points for the ledger.
C) Record the entry for underapplied or overapplied manufacturing overhead in the General Journal.
D) Prepare a Schedule of Cost of Goods Manufactured in good form for 2016 with the proper heading. Be sure to double rule where necessary. Remember that it is applied manufacturing overhead, not actual manufacturing overhead that appears on the schedule.
E) Prepare a Schedule of Cost of Goods Sold (adjusted by overhead) in good form for 2016 with the proper heading. Be sure to double rule where necessary.
F) Prepare an Income Statement (traditional format as shown in the examples this week) in good form for 2016 with the proper heading. Income Taxes should be deducted to yield a final Net Income figure. Be sure to double rule where necessary.
Reminder: Record the income tax expense in the general journal.