. Hacken Company has a job-order costing system.

The company applies manufacturing overhead to

jobs using a predetermined overhead rate based on direct labor cost. The information below has been
taken from the cost records of Hacken Company for the past year:

Direct materials used in production ..................................................... $1,250

Total manufacturing costs charged to production during the year (includes direct materials, direct
labor, and applied factory overhead) ......................................................................................... $6,050

Manufacturing overhead applied ......................................................... $2,800

Selling and administrative expenses.................................................... $1,000

Inventories:

Direct materials, January 1 ............................................................... $130

Direct materials, December 31 ......................................................... $80

Work in process, January 1 .............................................................. $250

Work in process, December 31 ........................................................ $400

Finished goods, January 1 ................................................................ $300

Finished goods, December 31 .......................................................... $200

Required:

a. Compute the cost of direct materials purchased during the year.

b. Compute the predetermined overhead rate that was used during the past year.

c. Compute the Cost of Goods Manufactured for the past year.

d. Compute the Cost of Goods Sold for the past year.

Answer:

a. Cost of raw materials used in production ........................................ $1,250

Less decrease in the raw materials inventory during the year

($130 - $80 = $50) ....................................................................... 50

Cost of raw materials purchased during the year ............................ $1,200

b. Total manufacturing costs ............................................................... $6,050

Less: Direct materials used in production ....................................... 1,250

Less: Manufacturing overhead applied ........................................... 2,800

Direct labor cost incurred ................................................................ $2,000

 Predetermined overhead rate = Manufacturing overhead cost ÷ Direct labor cost = $2,800 ÷ $2,000
=140% of direct labor cost

c. Total manufacturing costs ............................................................... $6,050

Add: Work in process inventory, January 1 .................................... 250

6,300

Deduct: Work in process inventory, December 31 ......................... 400

Cost of goods manufactured ............................................................ $5,900

d. Finished goods inventory, January 1 ............................................... $ 300

Add: Cost of goods manufactured ................................................... 5,900

Cost of goods available for sale ...................................................... 6,200

Deduct: Finished goods inventory, December 31 ........................... 200

Cost of goods sold ........................................................................... $6,000

114. The Simkins Company uses a job order costing system. The following activities took place during
the month of May:

a. Raw materials purchased, $40,000.

b. Raw materials (all direct) used in production, $35,000.

c. Salaries and wages cost incurred:

Direct labor cost, $60,000.

Indirect labor cost, $30,000.

Sales salaries $25,000.

d. Factory utility costs incurred, $15,000.

e. Depreciation on factory equipment, $50,000.

f. Advertising expense incurred, $80,000.

g. Manufacturing overhead is applied at the predetermined rate of 150% of direct labor cost.

h. Cost of Goods Manufactured for the month, $180,000.

i. Cost of Goods Sold for the month, $150,000.

 Required:

Prepare journal entries to record the information given above. Key your entries by the letters a
through i.

Answer:

a. Raw materials inventory .......................... 40,000

Accounts payable ............................... 40,000

b. Work in process ........................................ 35,000

Raw materials inventory .................... 35,000

c. Work in process ........................................ 60,000

Manufacturing overhead .......................... 30,000

Sales salaries expense .............................. 25,000

Wages and salaries payable ............... 115,000

d. Manufacturing overhead .......................... 15,000

Accounts payable ............................... 15,000

e. Manufacturing overhead .......................... 50,000

Accumulated depreciation ................. 50,000

f. Advertising expense ................................. 80,000

Accounts payable ............................... 80,000

g. Work in process ........................................ 90,000

Manufacturing overhead .................... 90,000

$60,000 × 150% = $90,000

h. Finished goods ......................................... 180,000

Work in process ................................. 180,000

i. Cost of goods sold .................................... 150,000

Finished goods ................................... 150,000