Prior to the beginning of 2019, Lowe Company estimated that it would incur $176,000 of manufacturing overhead cost during 2019, using 16,000 direct labor hours to produce the desired volume of goods. On January 1, 2019, beginning balances of Materials Inventory, Work in Process Inventory, and Finished Goods Inventory were $28,000, $-0-, and $43,000, respectively. Prepare the journal entries.

raw materials 39,000 debit

  accounts payable  39,000 credit

WIP inventory   31,000 debit

factor overhead 11,000 debit

        raw materials               42,000 credit

WIP materials       108,000 debit

factory overhead   27,000 debit

     wages payable              135,000 credit

WIP invenotry   165,000 debit

      factory overhead    165,000 credit

factory overhead   92,000 debit

         accounts payable    92,000 credit

factory overhead 35,000 debit

  cost of goods sold     35,000 credit

Questions:

a. Purchased materials on account, $39,000.

b. Of the total dollar value of materials used, $31,000 represented direct material and $11,000 indirect material.

c. Determined total factory labor, $135,000 (15,000 hrs. @ $9/hr.)

d. Of the factory labor, 80% was direct and 20% indirect.

e. Applied manufacturing overhead based on direct labor hours to work in process.

f. Determined actual manufacturing overhead other than those items already recorded, $92,000. (Credit Accounts Payable.)

Explanation:

predetermined overhead rate:

expected overhead / expeected labor hours

176,000 / 16,000 = $11

applied 15,000 x $11 = 165,000

factory overhead reconciliaiton:

92,000 + 27,000 + 11,000 = 130,000

applied 165,000

overapplied by 35,000

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