Krazy Kayaks manufactures kayaks. The company has automated production, so it allocates manufacturing overhead based on machine hours. Krazy expects to incur $240,000 of manufacturing overhead costs and to use 4,000 machine hours during 2015. At the end of 2014, Krazy reported the following inventories:
Raw Materials Inventory $20,000
Work-in-Process Inventory $17,000
Finished Goods Inventory $11,000
During January 2015, Krazy used 300 machine hours and recorded the following transactions:
- Purchased materials on account, $31,000
- Used direct materials, $39,000
- Manufacturing wages incurred totaled $40,000, of which 90% was direct labor and 10% was indirect labor.
- Used indirect materials, $3,000
- Incurred other manufacturing overhead for January 2015, $13,000
- Allocated manufacturing overhead for January 2015
- Cost of completed motor scooters, $100,000
- Sold scooters on account, $175,000; cost of scooters sold, $95,000
Requirements:
Compute Krazy Kayak’s predetermined overhead allocation rate for 2015
Journalize the transactions in the general journal.
Adjust the Manufacturing overhead for the overallocated or under-allocated overhead.