
Concept explainers
Over-applied
Under-applied overheads means when applied overheads are less than the actual overheads incurred then it is known under-applied overheads.
The schedule of cost of goods manufactured is used to calculate the cost of goods produced i.e. consisting of direct material, labor cost, factory and direct overheads and after adjustment of WIP inventory.
Requirement -1
To Calculate:
In the question we have given the data related to Job 114, Job 115 and Job 116. We have to prepare the following:
1. Total

Answer to Problem 1BPSB
Solution:
1. Total manufacturing costs and the costs assigned to each job:
Job 114 - $186,000
Job 115- $314,000
Job 116- $260,000
Explanation of Solution
Explanation:
1. Total manufacturing costs and the costs assigned to each job
Job114($) | Job115($) | Job116($) | Sept. Total Manufacturing cost($) | ||
From August month | |||||
Direct materials | 14,000 | 18,000 | |||
Direct labor | 18,000 | 16,000 | |||
Overhead applied( 50% of direct labor) | 9,000 | 8,000 | |||
Opening work In process(a) |
41,000 | 42,000 | 83,000 | ||
For September month | |||||
Direct materials | 100,000 | 170,000 | 80,000 | 350,000 | |
Direct labor | 30,000 | 68,000 | 120,000 | 218,000 | |
Overheads (50% of direct labor cost incurred) | 15,000 | 34,000 | 60,000 | 109,000 | |
Total costs in September (b) |
145,000 | 272,000 | 260,000 | 677,000 | |
Total costs (a+b) | $186,000 | $314,000 | $260,000 | $760,000 |
Requirement -2
To determine:
In the given question, we have to pass the

Answer to Problem 1BPSB
Solution:
Journal entries for September
Sr.no. | journal titles | Debit ($) | Credit($) |
1. | Raw material stock | 400,000 | 400,000 |
Accounts payable | |||
(Being materials purchased) | |||
2. | Factory Payroll | 232,000 | |
Cash | 232,000 | ||
(being factory payroll recorded) | |||
3. | Factory overhead | 30,000 | |
Raw material inventory | 30,000 | ||
(being indirect material recorded) | |||
4. | Factory overhead | 14,000 | |
Factory payroll | 14,000 | ||
(being indirect labor recorded) | |||
5. | Factory overhead | 32,000 | |
cash | 32,000 | ||
(being rent and other utilities incurred recorded) | |||
6. | Factory overhead | 30,000 | |
30,000 | |||
(being depreciation on equipment recorded) | |||
7. | Work in Process Inventory | 350,000 | |
Raw material inventory | 350,000 | ||
(being goods used in job recorded) | |||
8. | Work in Process Inventory | 218,000 | |
Factory payroll | 218,000 | ||
(being direct labor used in job recorded) | |||
9. | Work in process inventory | 109,000 | |
Factory overhead | 109,000 | ||
(being overhead applied to jobs) | |||
10. | Finished goods | 500,000 | |
Work in process inventory (186,000+314,000) | 500,000 | ||
(being finished goods recorded) | |||
11. | Cost of goods sold | 186,000 | |
Finished goods | 186,000 | ||
(being cost of goods sold recorded) | |||
12. | Cash | 380,000 | |
Sales | 380,000 | ||
(being sales recorded) | |||
13. | Factory overhead | 3000 | |
Cost of goods sold | 3000 | ||
(being over-applied overhead recorded) |
Explanation of Solution
Explanation:
1) When raw material are purchased on credit then raw material account will be debited and accounts payable account will be credited as it is purchased on credit.
2) Factory payroll is recorded and it will be debited as direct material is used in the production.
3) When indirect material is used in the production then it will be added to the factory overhead and it will be debited and raw material inventory will be credited as the balance of raw material inventory will decrease.
4) When indirect labor is used in the production then factory overhead account will be debited and factory payroll account will be credited.
5) When rent and other utilities will be paid then factory overhead will increase and thus debited and cash will decrease therefore it will be credited.
6) When
7) When goods were used in the production then work in process account will be debited and raw material inventory account will be credited as its balance will decrease.
8) When direct labor is used in production then work in process will be debited and factory payroll will be credited
9) When overhead is used in the production then work in progress will be debited and factory overhead will be credited.
10) When finished goods were recorded in the books then finished goods account will be debited as balance of finished goods increases and work in process account will be credited as inventory transfers from work in process to finished goods.
11) In case of cost of goods sold is recorded then cost of goods sold account will be debited and finished goods account will be credited.
12) When sale is made then cash will increase thus it will be debited and sale account will be credited with the amount of sale made.
13) Since overhead is over-applied therefore
.
Calculation of over-applied overhead -
Overhead 109,000
Less: overhead incurred | ||
Indirect materials | $30,000 | |
Indirect labor | 14,000 | |
Factory rent | 20,000 | |
Factory utilities | 12,000 | |
Factory equip. depreciation | 30,000 | 106,000 |
Over-applied overhead | $ 3,000 |
Requirement-3:
To determine:
We have to prepare schedule for cost of goods manufactured or produced

Answer to Problem 1BPSB
Solution:
Cost of goods manufactured is $500,000(Schedule is below in the explanation)
Explanation of Solution
Explanation:
Schedule of cost of goods manufactured-
Perez mfg. company
Direct materials used | $350,000 |
Direct labor used | 218,000 |
Factory overhead: | |
Indirect materials | $ 30,000 |
Indirect labor | 14,000 |
Factory rent | 20,000 |
Factory utilities | 12,000 |
Depreciation of equipment | 30,000 |
Total manufacturing costs | 674,000 |
Add: goods in process August 31 (Jobs 114 & 115) | 83,000 |
Total cost of goods in process | 757,000 |
Less: goods in process, September 30 (Job 116) | (260,000) |
Add over-applied overhead | 3,000 |
Cost of goods manufactured | $500,000 |
Requirement -4
To Calculate:
We have to calculate Gross profit and inventories at the end of the month.

Answer to Problem 1BPSB
Solution:
1) Gross profit at the end of the month is $197,000
2) Inventories at the end of the month is $ 744,000
Explanation of Solution
Explanation:
Calculation of gross profit for the month ended September 30
Sales | $380,000 |
Less: Cost of goods sold ($186,000 - $3,000) | (183,000) |
Gross profit | $197,000 |
Calculation of inventories on the September 30
Particulars | Amount ($) |
Raw materials (a) | 170,000 |
Goods in process (Job 116) | 260,000 |
Finished goods (Job 115) | 314,000 |
Total inventories | $744,000 |
a) Calculation of raw material
Opening raw materials inventory | $150,000 |
Purchases | 400,000 |
Direct materials used | (350,000) |
Indirect materials used | (30,000) |
Closing raw materials inventory | $170,000 |
Requirement-5:
To determine
Adjustment related to under or over-applied overheads and impact of this adjustment to decision making regarding each Job

Answer to Problem 1BPSB
Solution:
since overhead is over-applied by $3000 indicates that individual jobs are above cost. Due to which profit of the job is understated.
Explanation of Solution
Explanation:
In the given case, overhead is over-applied by $3000 which means that the individual job are above cost. We can say that as overhead is over-applied which in return increase the total cost of individual job. Due to which profit of the job is understated.
Conclusion:
since overhead is over-applied by $3000 indicates that individual jobs are above cost. Due to which profit of the job is understated
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