Thunderduck Custom Tables, Inc. Schedule of cost of goods manufactured For the month Ended December 31, 20XX Thunderduck Custom Tables, Inc. Cost of goods sold For the month Ended December 31, 20XX Thunderduck Custom Tables, Inc. Income Statement For the month Ended December 31, 20xx

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Solution:

Step 1 – Predetermined Manufacturing Overhead Rate

– It is an overhead rate which is used to apply the manufacturing overhead to production department or products or job orders.

– Normally, it is calculated at the beginning of the period.

– It is calculated by dividing the estimated factory overhead cost by an allocation base (or suitable basis).

– Allocation bases may be direct labor hours, direct labor costs, machine hours etc.

Mathematically, it is calculated as follows:

Predetermined Factory Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Allocation Base

Here in the question allocation base given is 12 Estimated direct labor hours

Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost \$4,200 / Estimated Direct Labor Hours 12

= \$350 Per Hour

Step 2) — Job Cost Sheet for Job # 1

 Job Cost Sheet (Job # 1) \$\$ Direct Material cost for Table Top \$1,100 Direct material cost for making 4 Table Leg (\$200*4) \$800 Direct Labor (3 Employees x 2 hours x \$25 per hour) \$150 Manufacturing Overhead Applied (Total Hours 6 Hours (3 Employees x 2 hours each employee) x Predetermined Overhead Rate \$350 Per Hour) \$2,100 Total Manufacturing Cost \$4,150

Step 3 – Job # 2 Cost Sheet

 Job # 2 Cost Sheet \$\$ Direct Material cost for Table Top \$1,100 Direct material cost for making 4 Table Leg (\$200*4) \$800 Direct material cost for drawer \$310 Total Direct Material Cost \$2,210 Direct Labor (3 Employees x 3 hours x \$25 per hour) \$225 Manufacturing Overhead Applied (Total Hours 9 Hours x Predetermined Overhead Rate \$350 Per Hour) \$3,150 Total Manufacturing Cost \$5,585

Step 4 — Journal Entries

 Date General Journal Debit Credit Dec.1 Raw Materials \$11,000 Accounts Payable \$11,000 Dec.5 Work in process (Job # 1) (1100+800) \$1,900 Raw Materials \$1,900 Dec.10 Work In Process (Job# 1) \$5,500 Salaries and wages payable \$5,500 Dec.15 Work in process (Job # 2) \$2,210 Raw Materials \$2,210 Dec.16 Manufacturing Overhead \$600 Rent Payable or Accounts Payable \$600 Dec.17 Advertising expenses \$1,400 Accounts Payable \$1,400 Dec.20 Manufacturing Overhead \$150 Depreciation Expense \$600 Accumulated Depreciation \$750 Dec.22 Work In Process (Job#1) \$2,100 Manufacturing Overhead (Applied) \$2,100 Dec.26 Finished Goods Inventory (Job.# 1) \$4,150 Work IN Process (Job # 1) \$4,150 Dec.28 Accounts Receivable \$16,000 Sales Revenue (Job # 1) \$16,000 Cost of Goods Sold \$4,150 Finished Goods Inventory (Job# 1) \$4,150 Dec.31 Work In Process (Job # 2) \$225 Salaries and wages payable \$225 Dec.31 Work In Process (Job#2) \$3,150 Manufacturing Overhead (Applied) \$3,150 Dec.31 Manufacturing Overhead (Over Applied) \$1,050 (Refer Note 1) Cost of goods sold \$1,050

Note 1 – Calculation of Under or Over Applied Overhead

Total Estimated Manufacturing Overheads = \$4,200

Applied Manufacturing Overheads to the Jobs = \$2,100 + \$3,150 = \$5,250

Applied Manufacturing overheads are higher than total estimated overheads, it means the overheads are OVER APPLIED by \$1,050 (5,250 – 4,200)