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Garcia Manufacturing uses a job order cost system and applies overhead to production on
the basis of direct labor costs. On January 1, 2010, Job No. 50 was the only job in
process. The costs incurred prior to January 1 on this job were as follows: direct materials
$20,000, direct labor $12,000, and manufacturing overhead $16,000. As of January 1, Job
No. 49 had been completed at a cost of $90,000 and was part of finished goods inventory.
There was a $15,000 balance in the Raw Materials Inventory account.
During the month of January, Garcia Manufacturing began production on Jobs 51 and 52,
and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the
month for $122,000 and $158,000, respectively. The following additional events occurred
during the month.
Purchased additional raw materials of $90,000 on account.

Incurred factory labor costs of $65,000. Of this amount $16,000 related to employer
payroll taxes.

Incurred manufacturing overhead costs as follows: indirect materials $17,000; indirect

labor $15,000; depreciation expense $19,000, and various other manufacturing overhead
costs on account $20,000.

Assigned direct materials and direct labor to jobs as follows.

Job No. Direct Materials Direct Labor

50 $10,000 $ 5,000
51 39,000 25,000
52 30,000 20,000

Calculate the predetermined overhead rate for 2010, assuming Garcia Manufacturing
estimates total manufacturing overhead costs of $1,050,000, direct labor costs of
$700,000, and direct labor hours of 20,000 for the year.
%
Prepare the journal entries to record the purchase of raw materials, the factory labor costs
incurred, and the manufacturing overhead costs incurred during the month of January.
(For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
Account/Description Debit Credit
Factory wages payableAccumulated depreciationFinished goods inventorySalesCashRaw
materials inventoryDepreciation expenseAccounts payableWages expenseFactory
laborManufacturing overheadWork in process inventoryEmployer payroll taxes payable
Work in process inventoryDepreciation expenseFactory laborEmployer payroll taxes
payableFinished goods inventoryAccounts payableFactory wages payableSalesRaw
materials inventoryCashManufacturing overheadAccumulated depreciationWages
expense
(To record purchase of raw materials.)
SalesAccumulated depreciationCashFactory laborDepreciation expenseRaw materials
inventoryEmployer payroll taxes payableAccounts payableFactory wages
payableManufacturing overheadWages expenseWork in process inventoryFinished goods
inventory
Accounts payableFactory laborEmployer payroll taxes payableSalesCashWork in process
inventoryManufacturing overheadFactory wages payableAccumulated depreciationRaw
materials inventoryDepreciation expenseWages expenseFinished goods inventory
Employer payroll taxes payableFinished goods inventorySalesCashDepreciation
expenseRaw materials inventoryAccounts payableFactory laborFactory wages
payableWages expenseWork in process inventoryManufacturing overheadAccumulated
depreciation
(To record factory labor costs.)
CashRaw materials inventoryFactory laborFinished goods inventoryFactory wages
payableManufacturing overheadWork in process inventoryAccounts
payableAccumulated depreciationEmployer payroll taxes payableSalesDepreciation
expenseWages expense
Wages expenseWork in process inventoryFinished goods inventoryRaw materials
inventoryAccumulated depreciationEmployer payroll taxes payableAccounts
payableSalesManufacturing overheadFactory wages payableCashFactory
laborDepreciation expense
Factory laborManufacturing overheadCashFinished goods inventoryEmployer payroll
taxes payableRaw materials inventoryFactory wages payableAccounts
payableSalesWages expenseAccumulated depreciationDepreciation expenseWork in
process inventory
Factory wages payableDepreciation expenseWages expenseFactory laborEmployer
payroll taxes payableWork in process inventoryFinished goods
inventorySalesManufacturing overheadRaw materials inventoryAccumulated
depreciationCashAccounts payable
Factory laborRaw materials inventoryWages expenseWork in process inventoryAccounts
payableEmployer payroll taxes payableSalesFinished goods inventoryDepreciation
expenseCashFactory wages payableManufacturing overheadAccumulated depreciation
(To record overhead costs.)
Prepare the journal entries to record the assignment of direct materials, direct labor, and
manufacturing overhead costs to production. In assigning manufacturing overhead costs,
use the overhead rate calculated in the first part of the question.
Account/Description Debit Credit
Employer payroll taxes payableFinished goods inventoryFactory wages payableWages
expenseAccumulated depreciationDepreciation expenseSalesCashAccounts
payableManufacturing overheadFactory

(a) $1,050,000 ÷ $700,000 direct labor costs = 150% of direct labor costs

(b) See solution to part (e) for job cost sheets

(c) Raw Materials Inventory..................................................................... 90,000

Accounts Payable........................................................................
90,000

Factory Labor....................................................................................... 65,000

Factory Wages Payable..............................................................
49,000
Employer Payroll Taxes Payable..............................................
16,000

Manufacturing Overhead.................................................................... 71,000

Accounts Payable........................................................................
20,000
Accumulated Depreciation.........................................................
19,000
Raw Materials Inventory...........................................................
17,000
Factory Labor.............................................................................
15,000

(d) Work in Process Inventory.................................................................. 79,000

Raw Materials Inventory
   ($10,000 + $39,000 + $30,000)................................................
79,000

Work in Process Inventory.................................................................. 50,000

Factory Labor ($5,000 + $25,000 + $20,000)...........................
50,000

Work in Process Inventory.................................................................. 75,000

Manufacturing Overhead
  ($50,000 X 150% of direct labor costs).................................
75,000

See solution to part (e) for postings to job cost sheets.

(e) Job Cost Sheets
Job No. 50
Date Direct Materials Direct Labor Manufacturing Overhead
Beg. $20,000 $12,000 *$16,000*
Jan. 10,000 5,000 * 7,500*
$30,000 $17,000 *$23,500*

Cost of completed job

Direct materials.......................................................................................... $30,000
Direct labor.................................................................................................  17,000
Manufacturing overhead........................................................................... 23,500
Total cost............................................................................................................... $70,500

*$5,000 X 150%

Job No. 51
Date Direct Materials Direct Labor Manufacturing Overhead
Jan. $39,000 $25,000 **$37,500**
$39,000 $25,000 **$37,500**

Cost of completed job

Direct materials.......................................................................................... $ 39,000
Direct labor.................................................................................................  25,000
Manufacturing overhead........................................................................... 37,500
Total cost............................................................................................................... $101,500
 **$25,000 X 150%

Job No. 52
Date Direct Materials Direct Labor Manufacturing Overhead
Jan. $30,000 $20,000 ***$30,000***

***$20,000 X 150%

Finished Goods Inventory.......................................................................... 172,000

Work in Process Inventory.....................................................
172,000
  ($70,500 + $101,500)

(f) Accounts Receivable......................................................................... 280,000

Sales ($122,000 + $158,000)....................................................
280,000

Cost of Goods Sold............................................................................ 160,500

Finished Goods Inventory
  ($90,000 + $70,500)..............................................................
160,500

(g) Finished
Goods Inventory
Beginning balance  90,000   160,500 Cost of jobs 49 and 50 sold
Cost of completed jobs 50 and 51 172,000 
Ending balance 101,500 

The balance in this account consists of the cost of completed Job No. 51 which
has not yet been sold.

(h) Manufacturing Overhead

Actual Applied
71,000 75,000
 4,000

The balance in the Manufacturing Overhead account is overapplied.