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 331⁄3% on sales $960,000
(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.