Manufacturing Cost Flow Entries - Cost Accounting

1. Beta Corp uses a predetermined overhead rate of $12 per machine hour. During March, 8,500 machine hours were worked and actual overhead incurred was $98,000. If overhead was initially applied to production correctly, what journal entry should be made at month-end to close the overhead variance?
   Answer: Dr. Cost of Goods Sold $4,000; Cr. Manufacturing Overhead $4,000 Applied overhead = 8,500 hours × $12 = $102,000. Actual overhead = $98,000. Overhead is overapplied by $4,000, meaning the Manufacturing Overhead account has a $4,000 credit balance that must be closed. The entry debits COGS and credits MOH. Choice A reverses the entry. Choice C records application, not closing. Choice D uses an incorrect account name and direction.
2. Based on this information, which of the following describes the debit portion of the journal entry to distribute the factory payroll?
   Answer: A debit of $210,000 to Work-in-Process Inventory and a debit of $40,000 to Manufacturing Overhead Control. The total factory labor cost is $250,000. This cost must be split between direct and indirect labor. The wages for supervision and maintenance staff ($40,000) are indirect labor, which is a component of manufacturing overhead. The remaining amount ($250,000 - $40,000 = $210,000) is assumed to be direct labor. Direct labor is debited to Work-in-Process Inventory, and indirect labor is debited to Manufacturing Overhead Control.
3. Which of the following statements correctly describes the journal entry to close the overhead accounts?
   Answer: It will include a credit of $15,000 to be allocated among Work-in-Process, Finished Goods, and Cost of Goods Sold. First, determine the overhead balance. Applied MOH ($335,000) > Actual MOH ($320,000), so overhead is overapplied by $15,000. Overapplied overhead means that the costs in inventory and COGS are overstated. The closing entry must reduce these accounts. Therefore, the entry will involve a total credit of $15,000, which is prorated (allocated) to WIP, FG, and COGS. The full closing entry would be: Debit MOH Applied $335,000; Credit MOH Control $320,000; and Credit WIP, FG, and COGS for a total of $15,000.
4. What is the total amount that should be debited to the Work-in-Process Inventory account for this employee's work on the job?
   Answer: $960 The debit to Work-in-Process Inventory should only include the direct labor cost. When overtime premium is treated as overhead, only the regular wage rate for all hours worked is considered direct labor. The overtime premium is debited to MOH Control. Therefore, the direct labor cost is 48 hours $20/hour = $960. The overtime premium is 8 hours ($20 * 0.5) = $80, which would be debited to MOH Control. The total earnings are $960 + $80 = $1,040.
5. What is the journal entry to dispose of the overhead variance?
   Answer: Debit MOH Applied $190,000, Debit WIP $500, Debit FG $1,500, Debit COGS $8,000; Credit MOH Control $200,000. First, calculate the variance: Actual MOH ($200,000) > Applied MOH ($190,000), so there is a $10,000 underapplied balance. This balance must be debited to the accounts to increase their cost. Second, calculate the proration base: WIP + FG + COGS = $50,000 + $150,000 + $800,000 = $1,000,000. Third, allocate the $10,000 variance: - To WIP: ($50,000 / $1,000,000) * $10,000 = $500 - To FG: ($150,000 / $1,000,000) * $10,000 = $1,500 - To COGS: ($800,000 / $1,000,000) * $10,000 = $8,000 The closing entry must zero out the MOH accounts (Dr. MOH Applied $190k, Cr. MOH Control $200k) and record the allocated debits.
6. Assuming no other errors, what is the effect of this misclassification on the ending balances of the Work-in-Process (WIP) and Manufacturing Overhead (MOH) Control accounts before any year-end closing entries?
   Answer: WIP is overstated by $10,000, and MOH Control is understated by $10,000. The correct entry for using indirect materials is a debit to MOH Control. The correct entry for using direct materials is a debit to WIP. By misclassifying the indirect materials as direct, the company incorrectly debited WIP for $10,000 instead of debiting MOH Control for $10,000. Therefore, the WIP account balance is overstated by $10,000, and the MOH Control account (which records actual overhead costs) is understated by $10,000 because this actual cost was omitted.
7. What is the journal entry to record the cost of the goods that were sold during the period?
   Answer: Debit Cost of Goods Sold $28,000; Credit Finished Goods Inventory $28,000. First, calculate the total cost for Job A, the one that was sold. MOH for Job A = 50% * $12,000 DL = $6,000. Total Cost of Job A = $10,000 DM + $12,000 DL + $6,000 MOH = $28,000. Since Job A was completed and sold, its total cost becomes the Cost of Goods Sold. The journal entry to record the sale from an inventory perspective is a debit to Cost of Goods Sold and a credit to Finished Goods Inventory. Job B's cost ($8,000 DM + $9,000 DL + $4,500 MOH = $21,500) would be in the ending Finished Goods Inventory balance.
8. If the correct overhead rate had been used, what would have been the effect on the company's journal entry to close the overhead accounts?
   Answer: A credit of $5,000 would have been made to Cost of Goods Sold. This requires comparing the two scenarios. Original Scenario: Applied MOH = 10,000 hours * $18/hr = $180,000. Actual MOH = $195,000. Result = $15,000 underapplied, leading to a $15,000 debit to COGS. Correct Scenario: Applied MOH = 10,000 hours * $20/hr = $200,000. Actual MOH = $195,000. Result = $5,000 overapplied. Closing overapplied overhead involves a credit to COGS to reduce the expense. Therefore, using the correct rate would have resulted in a credit of $5,000 to COGS instead of a debit of $15,000.
9. Which of the following journal entries correctly records this transaction?
   Answer: Debit Raw Materials Inventory $40,000; Credit Accounts Payable $40,000. The purchase of raw materials increases the Raw Materials Inventory account, which is an asset. Since the purchase was made 'on account,' it creates a liability, which is recorded as a credit to Accounts Payable. Debiting Work-in-Process Inventory (A) is incorrect because the materials have not yet been used in production. Crediting Cash (B) is incorrect because the purchase was on account, not for cash. Debiting Manufacturing Supplies (C) is incorrect because 'Raw Materials' is the more specific and appropriate account for materials that will become part of the final product.
10. Which journal entry correctly records the completion of this job?
    Answer: Debit Finished Goods Inventory $19,000; Credit Work-in-Process Inventory $19,000. First, calculate the total cost of the job. This includes direct materials, direct labor, and applied overhead. Applied Overhead = 75% Direct Labor Cost = 0.75 $8,000 = $6,000. Total Job Cost = DM + DL + Applied MOH = $5,000 + $8,000 + $6,000 = $19,000. The journal entry to record the completion of a job is to transfer its total cost from Work-in-Process Inventory to Finished Goods Inventory. This is done with a debit to Finished Goods Inventory and a credit to Work-in-Process Inventory.
11. What is the journal entry to record the transfer of completed goods to the finished goods warehouse?
    Answer: Debit Finished Goods Inventory $230,000; Credit Work-in-Process Inventory $230,000. This requires calculating the Cost of Goods Manufactured (COGM) first. COGM = Beginning WIP + Total Manufacturing Costs Added - Ending WIP. Total Manufacturing Costs Added = DM + DL + Applied MOH = $100,000 + $80,000 + $60,000 = $240,000. Total costs in process = Beginning WIP + Costs Added = $25,000 + $240,000 = $265,000. COGM = $265,000 - Ending WIP ($35,000) = $230,000. The journal entry to transfer the cost of completed goods is a debit to Finished Goods Inventory and a credit to Work-in-Process Inventory for the COGM amount.
12. What is the summary journal entry to record these specific manufacturing overhead costs for the month?
    Answer: Debit Manufacturing Overhead Control $22,000; Credit Salaries Payable $6,000, Accumulated Depreciation $12,000, and Rent Payable/Cash $4,000. These are all examples of actual manufacturing overhead costs. The entry to record the incurrence of actual overhead is to debit the Manufacturing Overhead Control account. The corresponding credits are to the specific liability, contra-asset, or asset accounts involved. Debiting Work-in-Process Inventory (A) is for applying overhead, not incurring it. Debiting Manufacturing Overhead Expense (C) is incorrect terminology for product costing; these costs are inventoried. Debiting MOH Applied (D) is also incorrect; that account is credited when overhead is applied.
13. Lambda Corp discovered that $4,500 of materials issued to Job A should have been issued to Job B, and $3,200 of direct labor charged to Department X should have been charged to Department Y. Both errors occurred in the same accounting period and were discovered before the jobs were completed. What correcting journal entry should be made?
    Answer: Dr. Work-in-Process (Job B) $4,500; Dr. Work-in-Process (Dept Y) $3,200; Cr. Work-in-Process (Job A) $4,500; Cr. Work-in-Process (Dept X) $3,200 The correcting entry must transfer costs from incorrectly charged accounts to correctly charged accounts within WIP. Materials move from Job A to Job B ($4,500), and labor moves from Dept X to Dept Y ($3,200). Each transfer requires a debit to the correct account and credit to the incorrect account. Choice B incorrectly combines unrelated corrections. Choice C reverses costs out of production. Choice D charges corrections to COGS.
14. What was the total amount debited to the Work-in-Process Inventory account during March from these transactions?
    Answer: $176,000 The Work-in-Process Inventory account is debited for the three main product costs: direct materials, direct labor, and applied manufacturing overhead. 1. Direct Materials: $50,000 2. Direct Labor: $70,000 3. Applied MOH = 80% of Direct Labor Cost = 0.80 * $70,000 = $56,000. Total Debit to WIP = $50,000 + $70,000 + $56,000 = $176,000. Indirect materials and indirect labor are debited to Manufacturing Overhead Control, not Work-in-Process.
15. What is the journal entry to record the Cost of Goods Sold for the period?
    Answer: Debit Cost of Goods Sold $360,000; Credit Finished Goods Inventory $360,000. This is a two-step problem. First, calculate the Cost of Goods Sold (COGS). The formula is: COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory. COGS = $40,000 + $350,000 - $30,000 = $360,000. Second, record the journal entry for COGS, which is a debit to the Cost of Goods Sold expense account and a credit to the Finished Goods Inventory asset account.
16. What is the correct journal entry to record the application of manufacturing overhead for July?
    Answer: Debit Work-in-Process Inventory $75,000; Credit Manufacturing Overhead Applied $75,000. Manufacturing overhead is applied to Work-in-Process Inventory using the predetermined rate and the actual amount of the allocation base. The applied overhead is calculated as: 5,000 direct labor-hours * $15/hour = $75,000. The journal entry to apply overhead is a debit to Work-in-Process Inventory and a credit to a temporary overhead account, typically called Manufacturing Overhead Applied or Allocated. Using the actual overhead amount ($78,000) for the application entry is incorrect; actual overhead is recorded separately by debiting Manufacturing Overhead Control.
17. Which journal entry correctly closes the manufacturing overhead accounts at year-end?
    Answer: Debit Manufacturing Overhead Applied $485,000; Debit Cost of Goods Sold $15,000; Credit Manufacturing Overhead Control $500,000. First, determine if overhead is over- or underapplied. Actual MOH ($500,000) > Applied MOH ($485,000), so overhead is underapplied by $15,000. Underapplied overhead means the cost of products was understated, so the adjustment will increase Cost of Goods Sold. The closing entry must bring the balances of both MOH Control (a $500,000 debit balance) and MOH Applied (a $485,000 credit balance) to zero. To do this, you debit MOH Applied for $485,000 and credit MOH Control for $500,000. The $15,000 difference, representing the underapplied amount, is debited to Cost of Goods Sold.
18. Gamma Industries requisitioned $45,000 of materials during January: $38,000 for direct materials and $7,000 for indirect materials. Additionally, $12,000 of direct materials were returned to the storeroom due to design changes. What is the net effect on the Work-in-Process account from these material transactions?
    Answer: Increase of $26,000 in Work-in-Process inventory Only direct materials affect WIP. Initial requisition adds $38,000 to WIP. Returns reduce WIP by $12,000. Net effect = $38,000 - $12,000 = $26,000 increase. The $7,000 indirect materials goes to Manufacturing Overhead, not WIP. Choice B ignores returns. Choice C ignores returns and indirect materials classification. Choice D includes indirect materials incorrectly.
19. Based solely on this journal entry, what can be concluded about the company's manufacturing overhead for the year?
    Answer: The predetermined overhead rate was too low. The journal entry is closing the overhead accounts. The debit to MOH Applied of $210,000 indicates this was the amount of overhead applied during the year (it zeroes out the normal credit balance). The credit to MOH Control of $215,000 indicates this was the actual overhead incurred (it zeroes out the normal debit balance). Since actual ($215k) exceeded applied ($210k), overhead was underapplied by $5,000. The debit to COGS reflects the closing of this underapplied amount. Underapplied overhead occurs when the predetermined rate is too low, causing less overhead to be applied to jobs than was actually incurred.
20. Delta Manufacturing's payroll for the week totaled $85,000, with the following breakdown: direct labor $62,000, indirect labor $18,000, and administrative salaries $5,000. Payroll taxes and benefits total 25% of gross wages. What journal entry records the allocation of payroll costs to production accounts?
    Answer: Dr. Work-in-Process $77,500; Dr. Manufacturing Overhead $22,500; Dr. Administrative Expense $6,250; Cr. Payroll Payable $106,250 Total payroll with benefits = $85,000 × 1.25 = $106,250. Direct labor allocation to WIP = $62,000 × 1.25 = $77,500. Indirect labor to MOH = $18,000 × 1.25 = $22,500. Administrative = $5,000 × 1.25 = $6,250. Choice A omits administrative costs. Choice B ignores payroll taxes/benefits. Choice D incorrectly allocates administrative costs to production.

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