Question

Step 1:
Enter the following entries for the month of August. A. Purchased raw materials on account: $3,100. B. Selling and Administrative expenses incurred and paid: $1,200. C. Used direct materials: $3,900. D. Used indirect materials: $300. E. Manufacturing wages incurred totaled $4,000, of which 90% was direct labor and 10% was indirect labor. F. Incurred other actual factory overhead on account: $1,300. G. Factory Overhead was allocated to Work in Process Inventory at a predetermined overhead allocation rate of 60% of Direct Labor costs incurred during August. H. The cost of product completed: $10,000. I. Sales on account: $17,500. The cost of the units sold was $9,500.
Step 2:
Adjust for over or underallocated overhead.
Once you have entered the journal entries in Step 1 above, prepare and enter the necessary adjusting entry to correct for the overallocated or underallocated Factory Overhead. This entry should be dated "August 31, 2017." For the "Description," enter "Journal Entry J."

Answer 1

Answer:

Step 1

Item A

Debit : Raw Materials $3,100

Credit : Accounts Payable $3,100

Item B

Debit : Selling and Administrative expenses $1,200

Credit : Cash $1,200

Item C

Debit : Work in Process - Direct Materials $3,900

Credit : Raw Materials $3,900

Item D

Debit : Work in Process -Indirect Materials $300

Credit : Raw Materials $300

Item E

Debit : Work in Process - Direct Labor $3,600

Debit : Work in Process - Indirect Labor $400

Credit : Wages Payable $4,000

Item F

Debit : Factory overheads $1,300

Credit : Accounts Payable $1,300

Item G

Debit : Work in Process - Overheads $2,160

Credit : Overheads $2,160

Item H

Debit : Finished Goods Inventory $10,000

Credit : Work in Process Inventory $10,000

Item I

Debit : Accounts Receivable $17,500

Debit : Cost of Sales $9,500

Credit : Sales Revenue $17,500

Credit : Inventory $9,500

Step 2

Date : August 31, 2017

Description : Journal Entry J

Debit : Overheads $160

Credit : Cost of Sales $160

Explanation:

For step 1

If expenses are incurred, Debit the expense and credit Cash if cash was paid or Credit Accounts Payable if there was no immediate cash payment.

Ensure all manufacturing costs incurred are accumulated in the appropriate Work in Process Account.

Remember to record the corresponding cost of sales journal following the sale of completed units.

For step 2

If Actual overheads > Applied overheads, we have overheads under-applied,

and if Applied overheads > Actual overheads, we have over-applied overheads

Hence determine amounts of Actual and Applied overheads first :

Actual overheads calculation :

Indirect materials       $300

Indirect labor              $400

Other overheads     $1,300

Total                        $2,000

Applied overheads :

Applied  overheads = $2,160

therefore,

Over-applied overheads = $2,160 - $2,000 = $160

The cost of sales is reduced by the amount of over-applied overheads