M. Evans & Sons manufactures parts for radios. For each job order, they maintain ledger sheets on which they record direct materials, direct labour and factory overhead applied.

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    M. Evans & Sons manufactures parts for radios. For each job order, they maintain ledger sheets on which they record direct materials, direct labour and factory overhead applied. The factory overhead account contains postings for actual overhead costs. At the end of the month, the overhead variance is closed out to the cost of goods sold account.
    Factory overhead is applied on the basis of direct labour hours. M. Evans & Sons pre-determined overhead application rate for 2012 was computed from the following data:
    Total estimated factory overheads     $480,000
    Total estimated direct labour hours   $400,000
    i) purchased materials on account $50,000
    ii) Incurred manufacturing wages of $106,500
    iii) Issued direct materials and used direct labour in manufacturing
                            Direct materials                           Direct labor                       Direct labor hours
    Job101                        $10,000                             $22,000                               12,000
    Job102                        $8,000                               $19,000                               10,000
    Job102                        $9,000                               $20,500                               11,000
    Job104                        $15,000                             $29,025                              18,000
    iv). Issued indirect materials to productions, $8,000
    v) Charged indirect manufacturing wages to production, $15,975
    vi).Depreciation expense on factory equipment used on the different jobs, $30,000
    vii) Other overhead costs incurred on jobs 101 to 104 amounted to $11,275
    viii) Applied factory overhead to the various jobs using the pre-determined factory overhead rate.
    ix) Finished jobs 101-103 and transferred to the finished goods inventory account
    x) Shipped job 101 and 102 and billed customers at a mark-up of 40percent on cost
    You are required to:  
    1. Calculate the overhead rate for the business.
    2. Calculate the total manufacturing costs for each job.
    3. Using the total figures, record the preceding events in the general journal.
    4. Open T-accounts for Work in Process Inventory and finished Goods Inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
    5. Prepare the adjusting entry for the manufacturing overhead, assuming the balance is allocated entirely to cost of goods sold.
    6. Compute the gross profit on the units sold, after adjusting for the manufacturing overhead variance.

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