KRAFT ‘R’ US does customized, hand-crafted memorabilia, in which each batch of items is a job. The company has a highly labor intensive production process, so it allocates manufacturing overhead based on direct labor hours. Starz pre-determined overhead application rate for 20X8 was computed from the following data: Total estimated factory overheads $2,400,000 Total estimated direct labor hours 40,000 At the end of May 20X8, KRAFT ‘R’ US reported the following inventories: Materials Inventory Beginning Bal. $208,000 WIP Inventory Finished Beginning Bal. $176,000 Goods Inventory Beginning Bal $95,000 During June 20X8, KRAFT ‘R’ US actually used 3,000 direct labour hours and recorded the following transactions. (I) Purchased materials on account $310,000 (ii) Manufacturing wages incurred $400,000 (iii) Materials requisitioned (includes $30,000 of indirect materials) $420,000 (iv) Assigned manufacturing wages, 85% direct labour, 15% indirect labor (v) Depreciation expense on factory equipment used on the different jobs $95,000 (v) Other manufacturing overhead incurred $35,000 (vi) Allocated manufacturing overhead for June 20X8 (vii) Cost of jobs completed $995,000 (viii) Cost of jobs sold (on account) at a margin of 33⅓% on sales $960,000 Required: (a) Compute KRAFT ‘R’ US’ predetermined manufacturing overhead rate for 20X8. (b) State the journal entries necessary to record the above transactions in the general journal. Assume that KRAFT ‘R’ US uses the perpetual inventory system. (c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account and state the balance on the account before performing end of period closing entries. Show the journal entries necessary to dispose of the variance. (d) What is the balance in the Cost of Goods Sold account after the adjustment? (e) Compute KRAFT ‘R’ US ‘gross profit earned on the jobs completed. (f) Open T-accounts for Materials Inventory, Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts & determine the ending account balances.
KRAFT ‘R’ US does customized, hand-crafted memorabilia, in which each batch of items is a job. The company has a highly labor intensive production process, so it allocates manufacturing overhead based on direct labor hours. Starz pre-determined overhead application rate for 20X8 was computed from the following data: Total estimated factory
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