Chapter 2 Exercises

1. During January, its first month of operations, Knox Company accumulated the following
manufacturing costs: raw materials $4,000 on account, factory labor $6,000 of which $5,200 relates to
factory wages payable and $800 relates to payroll taxes payable, and factory utilities payable $2,000.
Prepare separate journal entries for each type of manufacturing cost.

Solution

Jan. 31 Raw Materials Inventory ............................. 4,000

Accounts Payable ........................................ 4,000

31 Factory Labor .............................................. 6,000

Factory Wages Payable ............................... 5,200
Employer Payroll Taxes Payable ................. 800

31 Manufacturing Overhead ............................ 2,000

Utilities Payable ............................................ 2,000

2. In January, Knox Company requisitions raw materials for production as follows: Job 1 $900, Job 2
$1,200, Job 3 $700, and general factory use $600. Prepare a summary journal entry to record raw
materials used.
Solution
Jan. 31 Work in Process Inventory ......................... 2,800
Manufacturing Overhead ............................ 600
Raw Materials Inventory .............................. 3,400
3. Factory labor data for Knox Company is given in exercise 1. During January, time tickets show that
the factory labor of $6,000 was used as follows: Job 1 $2,200, Job 2 $1,600, Job 3 $1,400, and general
factory use $800. Prepare a summary journal entry to record factory labor used.

Solution
Jan. 31 Work in Process Inventory ......................... 5,200
Manufacturing Overhead ............................ 800
Factory Labor ............................................... 6,000
4. Marquis Company estimates that annual manufacturing overhead costs will be $900,000. Estimated
annual operating activity bases are direct labor cost $500,000, direct labor hours 50,000, and machine
hours 100,000. Compute the predetermined overhead rate for each activity base.
Solution
Overhead rate per direct labor cost is 180%, or (900,000 ÷ 500,000).
Overhead rate per direct labor hour is 18, or (900,000 ÷ 50,000 DLH).
Overhead rate per machine hour is 9, or (900,000 ÷ 100,000 MH).

5. During the first quarter, Roland Company incurs the following direct labor costs: January $40,000,
February $30,000, and March $50,000. For each month, prepare the entry to assign overhead to
production using a predetermined rate of 70% of direct labor cost.

Solution
Jan. 31 Work in Process Inventory ............... 28,000
Manufacturing Overhead (40,000 X 70%) 28,000

Feb. 28 Work in Process Inventory ............... 21,000

Manufacturing Overhead (30,000 X 70%) 21,000

Mar. 31 Work in Process Inventory ............... 35,000

Manufacturing Overhead (50,000 X 70%) 35,000
6. In March, Stinson Company completes Jobs 10 and 11. Job 10 cost $20,000 and Job 11 $30,000. On
March 31, Job 10 is sold to the customer for $35,000 in cash. Journalize the entries for the completion
of the two jobs and the sale of Job 10.
Solution
Mar. 31 Finished Goods Inventory ....................50,000
Work in Process Inventory ..................... 50,000

31 Cash .......................................................35,000
Sales Revenue ......................................... 35,000

31 Cost of Goods Sold ..............................20,000

Finished Goods Inventory ...................... 20,000
7. Preprah Engineering Contractors incurred service salaries and wages of $36,000 ($28,000 direct and
$8,000 indirect) on an engineering project. The company applies overhead at a rate of 25% of direct
labor. Record the entries to assign service salaries and wages and to apply overhead.

Solution
Service Contracts in Process ...............................28,000
Operating Overhead ............................................... 8,000
Service Salaries and Wages ................... 36,000

Service Contracts in Process ......... (28,000 X .25) 7,000

Operating Overhead ................................ 7,000
8. At December 31, balances in Manufacturing Overhead are Shimeca Company—debit $1,200, Garcia
Company—credit $900. Prepare the adjusting entry for each company at December 31, assuming the
adjustment is made to cost of goods sold.
Solution
Shimeca Company
Dec. 31 Cost of Goods Sold ................................ 1,200
Manufacturing Overhead ........................ 1,200

Garcia Company
Dec. 31 Manufacturing Overhead ........................ 900
Cost of Goods Sold ................................. 900

9. For Eckstein Company, the predetermined overhead rate is 130% of direct labor cost. During the
month, Eckstein incurred $100,000 of factory labor costs, of which $85,000 is direct labor and $15,000
is indirect labor. Actual overhead incurred was $115,000. Compute the amount of manufacturing
overhead applied during the month. Determine the amount of under- or overapplied manufacturing
overhead.

Solution
Manufacturing overhead applied = 130% X 85,000 = 110,500
Underapplied manufacturing overhead = 115,000 – 110,500 = 4,500

10. The gross earnings of the factory workers for Vargas Company during the month of January are
$76,000. The employer’s payroll taxes for the factory payroll are $8,000. The fringe benefits to be paid
by the employer on this payroll are $6,000. Of the total accumulated cost of factory labor, 85% is
related to direct labor and 15% is attributable to indirect labor.
Instructions
(a) Prepare the entry to record the factory labor costs for the month of January.
(b) Prepare the entry to assign factory labor to production.
Solution
(a) Factory Labor .............................................. 90,000
Factory Wages Payable .................................. 76,000
Employer Payroll Taxes Payable ................... 8,000
Employer Fringe Benefits Payable ................ 6,000

(b) Work in Process Inventory (900,000 X 85%) ......76,500

Manufacturing Overhead .......................... 13,500
Factory Labor .................................................. 90,000
11. Stine Company uses a job order cost system. On May 1, the company has a balance in Work in
Process Inventory of $3,500 and two jobs in process: Job No. 429 $2,000, and Job No. 430 $1,500.
During May, a summary of source documents reveals the following.
Materials Labor
Job Number Requisition Slips Time Tickets
429 $2,500 $1,900
430 3,500 3,000
431 4,400 $10,400 7,600 $12,500
General use 800 1,200
$11,200 $13,700
Stine Company applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor cost.
Job No. 429 is completed during the month.
Instructions
(a) Prepare summary journal entries to record (i) the requisition slips, (ii) the time tickets, (iii) the
assignment of manufacturing overhead to jobs, and (iv) the completion of Job No. 429.
(b) Post the entries to Work in Process Inventory, and prove the agreement of the control account with
the job cost sheets. (Use a T-account.)
Solution
(a) May 31 Work in Process Inventory....... 10,400
Manufacturing Overhead ......... 800
Raw Materials Inventory ................ 11,200

31 Work in Process Inventory....... 12,500

Manufacturing Overhead ......... 1,200
Factory Labor ................................. 13,700

31 Work in Process Inventory(12,500 X 60%)7,500

Manufacturing Overhead ............... 7,500

31 Finished Goods Inventory ........ 7,540

Work in Process Inventory ............ 7,540
(2,000 + 2,500 + 1,900 + 1,140*)

*1,900 X 60%

(b) Work in Process Inventory

May 1 Balance 3,500 May 31 7,540
31 10,400
31 12,500
31 7,500
May 31 Balance 26,360

Job Cost Sheets

Job Beginning Work Direct Direct Manufacturing*
No. in Process Material Labor Overhead Total
430 1,500 3,500 3,000 1,800 9,800
431 0 4,400 7,600 4,560 16,560
1,500 7,900 10,600 6,360 26,360
12. Duggan Company applies manufacturing overhead to jobs on the basis of machine hours used.
Overhead costs are expected to total $300,000 for the year, and machine usage is estimated at 125,000
hours.
For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.
Instructions
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of under- or overapplied overhead at December 31?
(c) Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of
goods sold.
Solution
(a) 2.40 per machine hour (300,000 ÷ 125,000 MH).
(b) (322,000) – (2.40 x 130,000 Machine Hours)
322,000 – 312,000 = 10,000 underapplied
(c) Cost of Goods Sold ........................................ 10,000
Manufacturing Overhead ................................... 10,000
13. A job cost sheet of Sandoval Company is given below

Instructions
(a) Answer the following questions.
(1) What are the source documents for direct materials, direct labor, and manufacturing
overhead costs assigned to this job?
(2) What is the predetermined manufacturing overhead rate?
(3) What are the total cost and the unit cost of the completed job? (Round unit cost to nearest
cent.)
(b) Prepare the entry to record the completion of the job.
Solution
(a) (1) The source documents are:
Direct materials—Materials requisition slips.
Direct labor—Time tickets.
Manufacturing overhead—Predetermined overhead
rate.

(2) The predetermined overhead rate is 125% of direct labor

cost. For example, on July 15, the computation is 550 ÷ 440
= 125%. The same result is obtained on July 22 and 31.

(3) The total cost is:

Direct materials ................................................... 4,700
Direct labor .......................................................... 1,360
Manufacturing overhead .................................... 1,700

7,760
The unit cost is 3.104 (7,760 ÷ 2,500).

(b) July 31 Finished Goods Inventory....................7,760

Work in Process Inventory ................... 7,760
14. Torre Corporation incurred the following transactions.
1. Purchased raw materials on account $46,300.
2. Raw materials of $36,000 were requisitioned to the factory. An analysis of the materials
requisition slips indicated that $6,800 was classified as indirect materials.
3. Factory labor costs incurred were $59,900, of which $51,000 pertained to factory wages
payable and $8,900 pertained to employer payroll taxes payable.
4. Time tickets indicated that $54,000 was direct labor and $5,900 was indirect labor.
5. Manufacturing overhead costs incurred on account were $80,500.
6. Depreciation on the company’s office building was $8,100.
7. Manufacturing overhead was applied at the rate of 150% of direct labor cost.
8. Goods costing $88,000 were completed and transferred to finished goods.
9. Finished goods costing $75,000 to manufacture were sold on account for $103,000.
Instructions
Journalize the transactions. (Omit explanations.)
Solution
1. Raw Materials Inventory......................................46,300
Accounts Payable .................................................. 46,300

2. Work in Process Inventory .................................29,200

Manufacturing Overhead .................................... 6,800
Raw Materials Inventory ........................................ 36,000

3. Factory Labor .................................................... 59,900

Factory Wages Payable ......................................... 51,000
Employer Payroll Taxes Payable .......................... 8,900

4. Work in Process Inventory ............................... 54,000

Manufacturing Overhead .................................. 5,900
Factory Labor ......................................................... 59,900

5. Manufacturing Overhead .......................... 80,500

Accounts Payable .......................................... 80,500

6. Depreciation Expense ................................... 8,100

Accumulated Depreciation—Building .......... 8,100

7. Work in Process Inventory (54,000 X 150%) 81,000

Manufacturing Overhead ............................... 81,000

8. Finished Goods Inventory ........................ 88,000

Work in Process Inventory ............................ 88,000

9. Accounts Receivable ................................ 103,000

Sales Revenue................................................ 103,000

Cost of Goods Sold ................................... 75,000

Finished Goods Inventory ............................. 75,000
15. At May 31, 2020, the accounts of Mantle Company show the following.
1. May 1 inventories—finished goods $12,600, work in process $14,700, and raw materials $8,200.
2. May 31 inventories—finished goods $9,500, work in process $15,900, and raw materials $7,100.
3. Debit postings to work in process were direct materials $62,400, direct labor $50,000, and
manufacturing overhead applied $40,000.
4. Sales revenue totaled $215,000.
Instructions
(a) Prepare a condensed cost of goods manufactured schedule.
(b) Prepare an income statement for May through gross profit.
(c) Indicate the balance sheet presentation of the manufacturing inventories at May 31, 2020.
Solution
(a) LOPEZ COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended May 31, 2020

Work in process, May 1 ........................................ 14,700

Direct materials used ........................................... 62,400
Direct labor ........................................................... 50,000
Manufacturing overhead applied ......................... 40,000
Total manufacturing costs ........................... 152,400
Total cost of work in process .............................. 167,100
Less: Work in process, May 31 ........................... 15,900
Cost of goods manufactured ............................... 151,200
(b) LOPEZ COMPANY
(Partial) Income Statement
For the Month Ended May 31, 2020

Sales revenue .................................................... 215,000

Cost of goods sold
Finished goods, May 1............................... 12,600
Cost of goods manufactured .................... 151,200
Cost of goods available for sale ............... 163,800
Less: Finished goods, May 31 ................. 9,500
Cost of goods sold ............................. 154,300
Gross profit ........................................................ 60,700

(c) LOPEZ COMPANY

(Partial) Statement of Financial Position
May 31, 2020

Current assets:
Finished goods inventory .............. 9,500
Work in process inventory ............. 15,900
Raw materials inventory ................... 7,100 32,500
16. Shown below are the job cost related accounts for the law firm of Jack, Bob, and
Will and their manufacturing equivalents:
Law Firm Accounts Manufacturing Firm Accounts
Supplies Raw Materials
Salaries and Wages Payable Factory Wages Payable
Operating Overhead Manufacturing Overhead
Service Contracts in Process Work in Process
Cost of Completed Service Contracts Cost of Goods Sold

Cost data for the month of March follow.

1. Purchased supplies on account $1,800.
2. Issued supplies $1,200 (60% direct and 40% indirect).
3. Assigned labor costs based on time cards for the month which indicated labor costs of
$70,000 (80% direct and 20% indirect).
4. Operating overhead costs incurred for cash totaled $40,000.
5. Operating overhead is applied at a rate of 90% of direct labor cost.
6. Work completed totaled $75,000.
Instructions
(a) Journalize the transactions for March. (Omit explanations.)
(b) Determine the balance of the Service Contracts in Process account. (Use a T-account.)
Solution
(a)
1. Supplies............................................. 1,800
Accounts Payable ...................... 1,800

2. Service Contracts in Process .......... 720

Operating Overhead ......................... 480
Supplies...................................... 1,200

3. Service Contracts in Process .......... 56,000

Operating Overhead ......................... 14,000
Salaries and Wages Payable ..... 70,000

4. Operating Overhead ......................... 40,000

Cash ............................................ 40,000

5. Service Contracts in Process

(560,000 X 90%) .............................. 50,400
Operating Overhead .................. 50,400

6. Cost of Completed Service

Contracts ........................................ 75,000
Service Contracts in Process ... 75,000

(b) Service Contracts in Process

2. 720 75,000 (6)
3. 56,000
5. 50,400
32,120