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Chapter 17: Q. 10RQ (page 938)

Give the journal entry for direct and indirect labor costs incurred. Explain how this transaction affects the accounting equation.

Short Answer

Expert verified




Date

Particulars

Debit ($)

Credit ($)

Work-in-process (direct labor)

XXX

Manufacturing overheads (indirect labor)

XXX

Wages payable

XXX

This transaction increases the assets i.e the work in process inventory and the current liability i.e. the wages payable of the company, and the manufacturing overhead is treated as an expense in the income statement.

Step by step solution

01

Direct labor

The direct labor cost refers to the salary or wages paid to the workers that are directly attributable to the products and services. It is incurred while manufacturing the product hence, treated as the work in process expenditure and added to the work in process inventory.

02

Indirect labor

Indirect labor refers to the employees who are not directly related to the manufacturing process. Indirect labor cost is treated as the manufacturing overhead (expense) in the income statement.

Whie recording the labor cost in the books of account, direct labor is treated asset, indirect labor is treated as the expense and the wages payable which is credited against the direct and indirect labor is treated as the current liability.

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Most popular questions from this chapter

The manufacturing records for Sporty Kayaks at the end of the 2018 fiscal year show the following information about manufacturing overhead:

Overhead allocated to production

\(409,200

Actual manufacturing overhead cost

432,000

Predetermined overhead allocation rate

\)44 per machine hours

Requirements

2. Was manufacturing overhead overallocated or underallocated for the year, and by how much?

For the following accounts, indicate what causes the account to increase and decrease. The first account is completed as an example.

Account

Is increased by:

Is decreased by:

Raw material inventory

Material purchased

Material used

Work in process inventory

Finished goods inventory

Cost of goods sold

Question: The following information pertains to Smith Company for the year:

Estimated manufacturing overhead

\(500,000

Actual manufacturing overhead

\)550,000

Estimated direct labor hours

10,000 hours

Actual direct labor hours

10,500 hours

13. Calculate the predetermined overhead allocation rate using direct labor hours as the allocation base.

14. Determine the amount of overhead allocated during the year. Record the journal entry.

15. Determine the amount of underallocated or overallocated overhead. Record the journal entry to adjust Manufacturing

Overhead.

Following is a list of cost system characteristics and sample companies. Match each to either job order costing or process costing.

j. A governmental agency that takes bids for specific items it utilizes where each item requires a separate bid.

Jerry never imagined he鈥檇 be sitting there in Washington being grilled mercilessly by a panel of congressmen. But a young government auditor picked up on his scheme last year. His company produced high-tech navigation devices that were sold to both military and civilian clients. The military contracts were 鈥渃ost-plus,鈥� meaning that payments were calculated based on actual production costs plus a profit markup. The civilian contracts were bid out in a very competitive market, and every dollar counted. Jerry knew that because all the jobs were done in the same factory, he could manipulate the allocation of overhead costs in a way that would shift costs away from the civilian contracts and into the military 鈥渃ost-plus鈥� work. That way, the company would collect more from the government and be able to shave its bids down on civilian work. He never thought anyone would discover the alterations he had made in the factory workers鈥� time sheets, but one of his accountants had noticed and tipped off the government auditor. Now, as the congressman from Michigan rakes him over the coals, Jerry is trying to figure out his chances of dodging jail time.

Requirements

  1. Based on what you have read above, what was Jerry鈥檚 company using as a cost driver to allocate overhead to the various jobs?
  2. Why does the government consider Jerry鈥檚 actions fraudulent?
  3. Name two ways that reducing costs on the civilian contracts would benefit the company and motivate Jerry to commit fraud.
See all solutions

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