You have just been hired by Dillman Company, a manufacturer of custom-built conveyor systems for factory and commercial operations. Mr. Nemerson, the cost accountant for the Company, has been assigned to educate you about the job-order costing system that the company uses. He informs you that they use a normal costing system where overhead is applied based on 115% of direct labor costs (rounded to the next whole dollar). He proceeded to show you the following job-order cost records from the month ended in August:
Job No. Direct Materials Direct Labor Applied OH Total Cost
667 $ 5,901 $1,730 ? ?
669 18,312 1,810 ? ?
670 406 500 ? ?
671 38,200 9,500 ? ?
672 9,615 550 ? ?
Mr. Nemerson indicated that Job #668 had been completed and sold in July. He also told you that Job #667 was the only job in process at the beginning of August. At that time, the job had consumed $4,300 of direct material and $900 of direct labor: Mr. Nemerson indicated that the proper amount of overhead had been applied to the job as part of the month-end process. At the end of August, the only open job was Job #671; all other jobs were complete. Mr. Nemerson asked you several questions to determine whether or not you understood the job-order costing system. ( you may use the above schedule to compute job costs):
a. What was the beginning balance in Work in Process inventory?
b. Prepare the following journal entries:
i. Record the amount of Raw Materials issued to production during August.
ii. Record the Manufacturing Overhead allocated to production during August.
iii. Transfer completed jobs from WIP to Finished Goods Inventory
c. Assume that during August, indirect manufacturing costs of $ 15,500 were incurred. Indicate the amount of over or under applied overhead for August and prepare the Journal Entry to eliminate such amount using the write-off method.
d. Assume that jobs 667, 669 and 670 were sold during August and there was no beginning finished goods inventory? What was the cost of goods sold for the month of August?