Instructions

Lowry Manufacturing uses a job-order cost system and applies overhead to production on the basis of direct labour hours. On January 1, 2022, Job No. 25 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $10,000, direct labour $6,000, and manufacturing overhead $9,000. Job No. 23 had been completed at a cost of $45,000 and was part of finished goods inventory. There was a $5,000 balance in the Raw Materials Inventory account.

During the month of January, the company began production on Jobs 26 and 27 and completed Jobs 25 and 26. Jobs 23 and 25 were sold on account during the month for $65,000 and $74,000, respectively. The following additional events occurred during the month:

The company purchased additional raw materials for $40,000 on account. It incurred factory labour costs of $32,400. It incurred the following manufacturing overhead costs: indirect materials $10,000, indirect labour $7,500, depreciation expense $12,000, and various other manufacturing overhead costs on account $11,000. It assigned direct materials and direct labour to jobs as follows:

Job No. Direct Materials Direct Labour 25 $5,000 $ 3,000 26 15,000 12,000 27 13,000 9,900

The company uses direct labour hours as the activity base to assign overhead. Direct labour hours incurred on each job were as follows: Job No. 25, 200; Job No. 26, 800; and Job No. 27, 600.

Instructions: a. Calculate the predetermined overhead rate for 2022, assuming Lowry Manufacturing estimates total manufacturing overhead costs of $500,000, direct labour costs of $300,000, and direct labour hours of 20,000 for the year. b. Open job cost sheets for Jobs 25, 26, and 27. Enter the January 1 balances on the job cost sheet for Job No. 25. c. Prepare the journal entries to record the purchase of raw materials, the factory labour costs incurred, and the manufacturing overhead costs incurred during the month of January. d. Prepare the journal entries to record the assignment of direct materials, direct labour, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in part (a). Post all costs to the job cost sheets as necessary. e. Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or entries) to record the completion of any job(s) during the month.

f. Prepare the journal entry (or entries) to record the sale of any job(s) during the month. g. Calculate the balance in the Work in Process Inventory account at the end of the month. What does this balance consist of? h. Calculate the amount of under- or over-applied overhead.