Sampson Company uses a job order cost system with overhead applied to products based on direct labor hours. Based on previous history, the company estimated its total overhead for the coming year (2009) to be $240,000 and its total direct labor hours to be 6,000.
On January 1, 2010 the general ledger of Sampson Company revealed that it had one job in process (Job 102) for which it had incurred a total cost of $15,000. Job 101 had been finished the previous month for a total cost of $30,000 but was not yet sold. The company had a contract for Job 103 but had not started working on it yet. Other balances in Raw Materials Inventory and other assets, liabilities, and owner's equity accounts are summarized here :
SAMPSON COMPANY
General Ledger Accounts
Raw Material Inventory
Date Description Dr Cr Balance
1/1 Balance 10,000 (Dr)
Work In Process Inventory (WIP)
Date Description Dr Cr Balance
1/1 Balance 15,000 (Dr)
Sales Revenue
Date Description Dr Cr Balance
Cash and other assets
Date Description Dr Cr Balance
1/1 Balance 100,000 (Dr)
Manufacturing Overhead
Date Description Dr Cr Balance
Finished Goods Inventory
Date Description Dr Cr Balance
1/1 Balance 30,000(Dr)
Cost of Goods Sold
Date Description Dr Cr Balance
Selling and administrative Expenses
Date Description Dr Cr Balance
Payables and Other Liabilities
Date Description Dr Cr Balance
1/1 Balance 85,000 (Cr)
Stockholder's Equity
Date Description Dr Cr Balance
1/1 Balance 70,000 (Cr)
Individual Job Cost Sheets (subsidiary ledgers to WIP)
Job 102 Job 103
Beginning Balance 15,000 -
+ Direct Materials
+ Direct Labor
+ Applied OH
Total Manufacturing Cost
During January, the company had the following transactions:
(a) Purchased $10,000 worth of raw materials on account
(b) Issued the following materials into production:
Item Cost Explanation
Direct Materials $7,000 Job 102,$2,000; Job 103,$5,000
Indirect Materials 2,000 Used on both jobs
Total material issued $9,000
( c ) Recorded salaries and wages payable as follows :
Item Cost Explanation
Direct Labor $10,000 Job 102,$6,000; Job 103,$4,000
Indirect Labor 4,000 For Factory supervision
Salaries 5,000 For administrative staff
Total Payroll cost $19,000
(d) Applied overhead to jobs based on the number of direct labor hours required :
Job number Direct Labor Hours
Job 102 300 hours
Job 103 200 hours
Total 500 hours
(e) Recorded the following actual manufacturing costs:
Item Cost Explanation
Rent $6,000 Paid factory rent in cash
Depreciation 5,000 Factory Equipment
Insurance 3,000 Had one month of factory insurance policy expire
Utilities 2,000 Received factory utility bill but did not pay it
Total Cost $16,000
(f) Recorded the following general and administrative cost :
Item Cost Explanation
Advertising $2,000 Advertising paid in cash
Depreciation 3,000 Office Equipment
Other expenses 1,000 Micellaneous expenses incurred but not paid.
Total Cost $6,000
(g) Sold Job 101, which is recorded in Finished Goods Inventory at a cost of $30,000 for $55,000
(h) Completed Job 102 but did not sell it; Job 103 is still in process at year-end.
Required :
1. Compute and interpret the predetermined overhead rate.
2. How much overhead would be applied to jobs during the period?
3. Compute the total cost of Jobs 102 and 103 at the end of the period. Where would the cost of each of these jobs appear on the year-end balance Sheet?
4. Prepare journal entries to record the January transaction and post the entries to the general ledger T-accounts OR column accounts as given earlier in the problem.
5. Calculate the amount of over or underapplied overhead.
6. Prepare the journal entry to dispose of the overhead balance assuming that it had been a year-end balance instead of a month-end balance. Post the effect to the general ledger T-accounts/column accounts.
7. Prepare a statement of cost of goods manufactured and sold report including the adjustment for over or underapplied overhead.
8. Prepare a brief income statement for Sampson Company.