Pedriani Company uses a job order cost system and applies overhead to production on the basis of

direct labor hours. On January 1, 2014, Job No. 25 was the only job in process. The costs incurred prior
to January 1 on this job were as follows: direct materials $10,000; direct labor $6,000; and
manufacturing overhead $9,000. Job No. 23 had been completed at a cost of $42,000 and was part of
finished goods inventory. There was a $5,000 balance in the Raw Materials Inventory account.
During the month of January, the company began production on Jobs 26 and 27, and completed Jobs 25
and 26. Jobs 23 and 25 were sold on account during the month for $63,000 and $74,000, respectively.
The following additional events occurred during the month.
1. Purchased additional raw materials of $45,000 on account.
2. Incurred factory labor costs of $33,500. Of this amount, $7,500 related to employer payroll taxes.
3. Incurred manufacturing overhead costs as follows: indirect materials $10,000; indirect labor $9,500;
depreciation expense on equipment $12,000; and various other manufacturing overhead costs on
account $11,000.
4. Assigned direct materials and direct labor to jobs as follows.
Job No.
25
26
27

1. The company uses direct labor hours as the activity base to assign overhead. Direct labor hours
incurred on each job were as follows: Job No. 25, 200; Job No. 26, 800; and Job No. 27, 600.

Instructions
(a)Calculate the predetermined overhead rate for the year 2014, assuming Pedriani Company estimates
total manufacturing overhead costs of $440,000, direct labor costs of $300,000, and direct labor hours
of 20,000 for the year.
(b)Open job cost sheets for Jobs 25, 26, and 27. Enter the January 1 balances on the job cost sheet for
Job No. 25.
(c)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.
(d)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 (a). Post all costs to the job cost sheets as necessary.
(e)Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or
entries) to record the completion of any job(s) during the month.
(f)Prepare the journal entry (or entries) to record the sale of any job(s) during the month.
(g)What is the balance in the Work in Process Inventory account at the end of the month? What does
this balance consist of?
(h)What is the amount of over- or under applied overhead?
 job 25 in process

WIP Beginning jan 1 values

FG beginning

RM inventory

Direct Mate
Direct Labor during the month
5000 3000 8000 Sales
17,000 12,000 29000
13,000 9,000 22000 RM purchases

factory labor
payroll taxes

manufacturing overheads ind material

ind labor

dep

other
Job No.

25

26

27
Answer A
predetermined overhead rate = Estimated total manufacturing overheads/Direct labor costs
predetermined overhead rate = $ 440,000/$ 300,000 = 146.67 % of Direct labor cost

Answer B
Job No. 25
Beginning Balance $ 25,000
add: costs added
Direct Materials $ 5,000
Direct Labor $ 3,000
Overheads $ 4,400
 (146.67 % * $ 3,000)
Total Costs $ 37,400

Answer C
Journal Entries
Raw materials inventory $ 45,000
Accounts Payable
(to record purchase of raw materials)

Factory labor $ 33,500

Factory labor payable
Payroll taxes payable
(to record factory labor costs)

Manufacturing overheads $ 42,500

Accounts Payable
Accumulated Depreciation
Raw materials inventory
Factory labor
(to record overhead costs)

Answer D
Work in process inventory $ 35,000
Raw materials inventory
($ 5,000 add $ 17,000 add $ 13,000)
(assignment of direct materials to production)

Work in process inventory $ 24,000

Factory labor
($ 3,000 add $ 12,000 add $ 9,000)
(assignment of direct labor to production)

Work in process inventory $ 35,200

Manufacturing overheads
(146.67 %* $ 24,000)

Answer E
Finished goods inventory $ 84,000
Work in process inventory
(Job No. 25 $ 37,400 add Job No.26 $ 46,600)

Answer F
Accounts Receivables $ 137,000
Sales revenue
(Job No. 23 $ 63,000 add Job No.25 $ 74,000)
 Answer G
Ending Work in process $ 35,200
Job No. 27

Answer H
Actual overheads $ 42,500
Applied overheads $ 35,200
240.0001 (146.67 % of Direct labor cost of $ 24,000)
UNDER APPLIED OVERHEADS $ 7,300
 direct materials direct labor manufacturing overheads
10000 6000 9000 25000
42000

5000

63000
74000 137000
45000

33500
7500

10000

9500

12000

11000
Direct Materials Direct Labor

5000 3000

17,000 12,000

13,000 9,000

erheads/Direct labor costs job 25

f Direct labor cost

26 27
$ - $ -

$ 17,000 $ 13,000
$ 12,000 $ 9,000
$ 17,600 $ 13,200
(146.67 % * $ 12,000) (146.67 % * $ 9,000)
$ 46,600 $ 35,200

35200
42500
7300
$ 45,000 under

$ 26,000
$ 7,500

$ 11,000
$ 12,000
$ 10,000
$ 9,500

$ 35,000

$ 24,000

$ 35,200

$ 84,000

$ 137,000
estimated total manu ###
direct labor costs ### 146.67%
direct labor hours 20000 22
 75000
71000
-4000
over