The Parker Company had the following transactions and events during its first year of operations. Estimated overhead for the year was $770,000; estimated direct labor cost for the year was $350,000.

a. Purchased materials for cash, $567,000.
b. Requisitioned materials for production as follows: direct materials - 85 percent of purchases, indirect materials - 12 percent of purchases
c. Direct labor for production is $331,000, indirect labor is $125,000.
d. Overhead incurred (not including materials or labor): $529,000.
e. Overhead is applied to production based on direct labor cost at the rate of __ _ percent.

Required:

Part 1. What is the Predetermined Overhead Rate for the year?
770,000/350,000= 220%

Part 2. Prepare the journal entries to record transactions a - e.
a) Date: Materials Inventory                  567,000

                Cash                                                        567,000

        (to record purchase of materials)

b) Date: WIP                                             481,950

             MOH                                             68,040

                          Materials Inventory                        549,990

       (to record requisition of materials)

c) Date: WIP                                             331,000

             MOH                                            125,000

                           Wages Payable                             456,000

        (to record wages expense incurred)

d) MOH                                                     529,000

    Various Accounts                                                 529,000

       (to record overhead incurred)

e)  ????

Part 3 – Is the overhead over- or under- applied and by how much?

 

 

Part 4 – Prepare the journal entry to make the adjustment of over- or under-applied overhead to Cost of Goods Sold.