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The Fine manufacturing company uses job order costing system. The company uses machine hours to apply overhead cost to jobs. At the beginning of 2012, the
company estimated that 150,000 machine hours would be worked and $900,000 overhead cost would be incurred during 2012.
The balances of raw materials, work in process (WIP), and finished goods at the beginning of 2012 were as follows:
The Fine manufacturing company recorded the following transactions during 2012:
Required:
1. Prepare journal entries, T-accounts and income statement from the above information.
2. Prepare a journal entry to close the balance in manufacturing overhead account (over or under applied manufacturing overhead) to cost of goods sold.
Solution:
1 (a). Journal entries:
https://www.accountingformanagement.org/comprehensive-example-of-job-order-costing-system/ 1/7
2/20/2018 Comprehensive example of job order costing system - Accounting for Management
Manufacturing overhead applied to production = Actual machine hours × Predetermined overhead rate
= 160,000 hours × $6
$960,000
(b) T accounts:
https://www.accountingformanagement.org/comprehensive-example-of-job-order-costing-system/ 2/7
2/20/2018 Comprehensive example of job order costing system - Accounting for Management
https://www.accountingformanagement.org/comprehensive-example-of-job-order-costing-system/ 3/7
2/20/2018 Comprehensive example of job order costing system - Accounting for Management
2. Journal entry to close the balance in manufacturing overhead account (disposition of over or under applied manufacturing overhead):
Notice that the balance in manufacturing overhead account is credit. It means overhead is over-applied. The following journal entry would dispose it off to cost of
goods sold:
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Comprehensive example of job order costing system
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very useful
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