KRAFT ‘R’ US does customized, hand-crafted memorabilia, in which each batch of items is a job. The
company has a highly labour intensive production process, so it allocates manufacturing overhead based on
direct labour hours.
Starz pre-determined overhead application rate for 20X8 was computed from the following data:
Total estimated factory overheads
Total estimated direct labour hours
$2,400,000
40,000
At the end of May 20X8, KRAFT ‘R’ US reported the following inventories:
Materials Inventory WIP Inventory Finished Goods Inventory
Bal. $208,000 Bal. $176,000 Bal. $95,000
During June 20X8, KRAFT ‘R’ US actually used 3,000 direct labour hours and recorded the following
transactions.
(i) Purchased materials on account $310,000
(ii) Manufacturing wages incurred $400,000
(iii) Materials requisitioned (includes $30,000 of indirect materials) $420,000
(iv) Assigned manufacturing wages, 85% direct labour, 15% indirect labour
(v) Depreciation expense on factory equipment used on the different jobs $95,000
(v) Other manufacturing overhead incurred $35,000
(vi) Allocated manufacturing overhead for June 20X8
(vii) Cost of jobs completed $995,000
(viii) Cost of jobs sold (on account) at a margin of 33⅓% on sales $960,000
Required:
(a) Compute KRAFT ‘R’ US’ predetermined manufacturing overhead rate for 20X8.
(b) State the journal entries necessary to record the above transactions in the general journal. Assume that
KRAFT ‘R’ US uses the perpetual inventory system.
(c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account and state the
balance on the account before performing end of period closing entries. Show the journal entries
necessary to dispose of the variance.
(d) What is the balance in the Cost of Goods Sold account after the adjustment?
(e) Compute KRAFT ‘R’ US’gross profit earned on the jobs completed.
(f) Open T-accounts for Materials Inventory, Work in Process Inventory and Finished Goods Inventory. Post
the appropriate entries to these accounts & determine the ending account balances.