PART 1
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 $2,400,000
Total estimated direct labour hours 40,000
At the
end
of May 20X8,
KRAFT ‘R’ US
reported the following inventories:
Materials Inventory bal. $208,000 WIP Inventory bal:$176,000 Finished Goods Inventory 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:
- Compute
KRAFT ‘R’ US’
predetermined manufacturing overhead rate for 20X8.
- State the journal entries necessary to record the above transactions in the general journal.
Assume that
KRAFT ‘R’ US
uses the perpetual inventory system.
- 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.
- What is the balance in the Cost of Goods Sold account
after
the adjustment?
- Compute
KRAFT ‘R’ US
’gross profit earned on the jobs completed.
- 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.