Help me journalise this transaction
2,240 2,2 Work-n-Process Inventory Next, journalize the revenue portion of the sale of Job 423 Accounts Debit Credit Date Apr 3 Accounts Receivable Sales Revenue Choose from any list or enter any number in the input fields and then click Check Answer Clear All remaining
Solution:
Calculation of Total Cost of Production for Job 423
| US$ | |
| Direct Material Cost (372 + 675 + 135) | 1,182 |
| Direct Labor Cost (160+300) | 460 |
| Applied Overhead (Refer note 1) | 598 |
| Total Cost of Production | 2,240 |
Note 1 – Applied Overhead to Job 423
Overheads are the indirect expenses which do not have the direct relation with the production or job. Overheads are incurred normally for the period, hence it is considered as period cost.
Overheads are generally allocated to the production department on some suitable basis. Suitable basis depends on the company’s policy. Suitable basis may be Direct Labor Cost, Direct Labor hour, machine hours etc.
In the question, the overheads are allocated on the basis of Direct Labor Cost. So we need to calculate the predetermined overhead rate to allocate the overhead.
Predetermined Overhead Rate (on direct labor cost) = Estimated Overhead / Estimated Direct labor cost
= $637,000 / $490,000
= 1.3 or 130% of Direct Labor Cost
Hence, the applied overhead to Job 423 = Direct Labor Cost of Job 423 * 130%
= 460*130%
= 598
1) Journal Entry to show the completion of Job
| Date | Accounts | Debit | Credit |
| Apr.3 | Finished Goods Inventory | 2,240 | |
| Work in process inventory | 2,240 | ||
2) Journal entry to record revenue portion of the sale of Job 423
| Date | Accounts | Debit | Credit |
| Apr.3 | Accounts Receivable (5,400 DVD x $1.1) | $5,940 | |
| Sales Revenue | $5,940 |
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