Calculation. Building a bicycle is labor intensive. And as such, we think the best way to allocate overhead is on Direct Labor Hours. At the beginning of the year, we estimate the following annual items:

Warehouse Rent $8,000

Storefront Rent $7,000

Manufacturing Supervisor Salary $40,000

Storefront Supervisor Salary $50,000

Indirect Materials $10,000

Total Machine Hours 29,000 Hours

Total Labor Hours 10,000 Hour

Calculate the Budgeted Overhead Rate for the year

January 10^th We start building our first bike. We will call it Job Number 100. We call the storeroom and requisition $500 of raw materials to be directly used on the Job. We also need an additional $200 in raw materials that will be used for indirect materials. Record the journal entry for the transaction:

January 15^th We start assembling the bike Job Number 100. We use 40 direct labor hours at a loaded rate of $25 / hour. Record the journal entry for the transaction:

January 20^th We apply the Overhead to Job 100 using the rate we calculated at the beginning of the year (in question 6 above). Record the journal entry for the transaction:

. Draft a Job Cost Sheet for the Bike Job 100.

January 29^th We finish the bike for Job 100. Then, a customer walks by the shop and wants to purchase it. They buy the bike for $2,000 cash on the spot. Make the Journal Entry for the completion of the bike AND the sale.