Eagle Carts, Inc., produces special-order golf carts, so Eagle Carts uses a job order costing system. Overhead is applied at the rate of 90 percent of direct labor cost. A list of transactions for January follows.
Jan. 1 Purchased direct materials on account, $215,400.
2 Purchased indirect materials on account, $49,500.
4 Requested direct materials costing $193,200 (all used on Job X) and indirect materials costing $38,100 for production.
10 Paid the following overhead costs: utilities, $4,400; manufacturing rent, $3,800; and maintenance charges, $3,900.
Jan. 15 Recorded the following gross wages and salaries for employees: direct labor, $120,000 (all for Job X); indirect labor, $60,620.
15 Applied overhead to production.
19 Purchased indirect materials costing $27,550 and direct materials costing $190,450 on account.
21 Requested direct materials costing $214,750 (Job X, $178,170; Job Y, $18,170; and Job Z, $18,410) and indirect materials costing $31,400 for production.
31 Recorded the following gross wages and salaries for employees: direct labor, $132,000 (Job X, $118,500; Job Y, $7,000; Job Z, $6,500); indirect labor, $62,240.
31 Applied overhead to production.
31 Completed and transferred Job X (375 carts) and Job Y (10 carts) to finished goods inventory; total cost was $855,990.
31 Shipped Job X to the customer; total production cost was $824,520 and sales price was $996,800.
31 Recorded these overhead costs (adjusting entries): prepaid insurance expired, $3,700; property taxes (payable at year end), $3,400; and depreciation- machinery, $15,500.
Required:
1. Record the entries for all transactions in January using T accounts for the following: Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Over- head, Cash, Accounts Receivable, Prepaid Insurance, Accumulated Depreciation- Machinery, Accounts Payable, Payroll Payable, Property Taxes Payable, Sales, and Cost of Goods Sold. Prepare job order cost cards for Job X, Job Y, and Job Z. (Round product unit cost to two decimal places.) Determine the partial account balances. Assume no beginning inventory balances. Also assume that when the pay- roll was recorded, entries were made to the Payroll Payable account.
2. Compute the amount of underapplied or overapplied overhead as of January 31 and transfer it to the Cost of Goods Sold account.
3. Why should the Overhead account's underapplied or overapplied overhead be transferred to the Cost of Goods Sold account?