Sampson Company uses a job order cost system with overhead applied to products based on direct labor

Question:

Sampson Company uses a job order cost system with overhead applied to products based on direct labor hours. Based on previous history, the company estimated its total overhead for the coming year (2016) to be $720,000 and its total direct labor hours to be 24,000.

On January 1, 2016, the general ledger of Sampson Company revealed that it had one job in process (Job 102) for which it had incurred a total cost of $15,000. Job 101 had been finished the previous month for a total cost of $30,000 but was not yet sold. The company had a contract for Job 103 but had not started working on it yet. Other balances in Raw Materials Inventory and other assets, liabilities, and stockholders' equity accounts are summarized on the next page.

a. Purchased $10,000 worth of raw materials on account.
b. Issued the following materials into production:
Item Cost Explanation
Direct materials...............$7,000...............Job 102, $2,000; Job 103, $5,000
Indirect materials...............2,000.................................Used on both jobs
Total materials issued........$9,000
c. Recorded salaries and wages payable as follows:
Item Cost Explanation
Direct labor...................$10,000.......Job 102, $6,000; Job 103, $4,000
Indirect labor....................4,000....................For factory supervision
Salaries...........................5,000..................For administrative staff
Total payroll cost............$19,000
d. Applied overhead to jobs based on the number of direct labor hours required:
Job Number Direct Labor Hours
Job 102...............................300 hours
Job 103...............................200 hours
Total..................................500 hours
e. Recorded the following actual manufacturing costs:
Item Cost Explanation
Rent............................$ 6,000....................................Paid factory rent in cash
Depreciation.....................5,000..........................................Factory equipment
Insurance........................3,000.....Had one month of factory insurance policy expire
Utilities..........................2,000...........Received factory utility bill but did not pay it
Total cost.....................$16,000
f. Recorded the following general and administrative costs:
Item Cost Explanation
Advertising.....................$2,000................................Advertising paid in cash
Depreciation......................3,000.......................................Office equipment
Other expenses...................1,000......Micellaneous expenses incurred but not paid
Total cost........................$6,000
g. Sold Job 101, which is recorded in Finished Goods Inventory at a cost of $30,000, for $55,000.
h. Completed Job 102 but did not sell it; Job 103 is still in process at year-end.
Required:
1. Compute and interpret the predetermined overhead rate.
2. How much overhead would be applied to jobs during the period?
3. Compute the total cost of Jobs 102 and 103 at the end of the period. Where would the cost of each of these jobs appear on the year-end balance sheet?
4. Prepare journal entries to record the January transactions and post the entries to the general ledger T-accounts given earlier in the problem.
5. Calculate the amount of over- or underapplied overhead.
6. Prepare the journal entry to dispose of the overhead balance assuming that it had been a yearend balance instead of a month-end balance. Post the effect to the general ledger T-accounts.
7. Prepare a statement of cost of goods manufactured report including the adjustment for over- or underapplied overhead.
8. Prepare a brief income statement for Sampson Company.