Question:
Waterways has two main public-park projects to provide with comprehensive irrigation in one of its service locations this month. Job K52 and Job J57 involve 15 acres of landscaped terrain which will need special-order sprinkler heads to meet the speci- fications of the project. Using a job cost system to produce these parts, the subsequent events occurred during December 2012.
Raw materials were requisitioned from the company's inventory on 2 December for $5,061; on 8 December for $1,059; and on 14 December for $3,459. In each instance, two- thirds (2/3) of these materials were for J57 and the rest for K52.
Six time tickets were turned in for these two projects for a net amount of 18 hours of work. All the workers were paid $16.50 per hour. The time tickets were dated December 3, December 9, and December 15. On each of those days, 6 labor hours were spent on these jobs, two-thirds (2/3) for J57 and the rest for K52.
The predetermined overhead rate is based on machine hours. The expected machine hour use for the year is 2,112 hours, and the anticipated overhead costs are $840,576 for the year. The machine was used by workers on projects K52 and J57 on December 3, 9, and 15. Six machine hours were used for project K52 (2 every day), and 8.5 machine hours were used for project J57 (2.5 the 1st day and 3 each of the other days). Both of these special orders were completed on December 15, producing 237 sprinkler heads for J57 and 142 sprinkler heads for K52.
Additional job order activities during this period of time included:
Dec. 1 Purchased raw materials from Durbin Supply Company on account for $53,200.
Dec. 2 Issued $40,000 of direct materials from the company's inventory to jobs other than K52 and J57 and $3,000 of indirect materials.
Dec. 12 Paid Waterways' factory salaries and wages in the amount of $65,000.
Dec. 13 Paid the factory's water bill of $9,000.
Dec. 18 Transferred $50,000 of costs from other completed jobs to finished goods.
Dec. 21 Paid the factory's electric bill of $12,000 for Waterways' factory.
Dec. 31 Made adjusting entries for the factory that included accrued property taxes of $12,000, prepaid insurance of $8,800, and accumulated depreciation of $16,000.
Instructions
(a) Set up the job cost sheets for Job No. K52 and Job No. J57. Evaluate the total cost for each manufacturing special order for these jobs.
(b) Journalize the activities from job cost sheets in the general journal. Also journalize the other costs that occurred during this period of time.
(c) Consider that Manufacturing Overhead has a debit balance of $3,600, evaluate whether overhead has been under/over applied and make the adjusting entry.
(d) Why would Waterways select machine hours as the cost driver for the overhead rather than direct labor cost? What would Waterways be likely to selected as the cost driver for the overhead for the job of installing the irrigation system and why?