Advanced Marine Technologies Ltd (AMT) manufactures outboard motors and an assortment of
other marine equipment. The company uses a job costing system and manufacturing overhead is
applied on the basis of machine hours. Estimated manufacturing overhead for the year is $2,868,
000, and management expect that 75,000 machine hours will be used. The following are
transaction relevant to April:
1. The firm purchased marine propellers from Headland Marine Corporation for $8,850 on
account.
2. A requisition was filed by the Gauge Department supervisor for 500 kilograms of clear plastic.
The material cost $0.55 per kilogram.
3. The Motor Testing Department supervisor requisitioned 200 metres of electrical wire, which
is considered an indirect material. The wire cost $0.20 per metre.
4. The month’s electricity bill of $1,000 was paid in cash. Most of the electricity is incurred by
production.
5. Direct labour costs incurred for the month were $145,000.
6. April’s insurance cost was $2,500 for insurance on the cars driven by sales personnel. The
policy had been prepaid in March.
7. Metal tubing costing $6,000 was purchased on credit.
8. A cash payment of $1,700 was made on outstanding accounts payable.
9. Indirect labour costs of $26,000 were incurred during April.
10. Depreciation on equipment for April amounted to $22,000.
11. The business accounted for the applied manufacturing overhead.
12. Job number D45, consisting of 50 tachometers, was finished during April. The total cost of
the job was $2,200.
13. During April, 8,000 machine hours were used.
14. Sales on account for April amounted to $350,000. The cost of goods sold in April was
$139,000.
1. Calculate the company’s predetermined overhead rate for the year.
2. Prepare journal entries to record the following events, which occurred in April
The predetermined overhead rate is a critical component in allocating manufacturing overhead costs to products. It is calculated by dividing the estimated manufacturing overhead costs for the year by the estimated total machine hours. In this case, the estimated manufacturing overhead for the year is $2,868,000, and the estimated machine hours are 75,000.
Predetermined Overhead Rate = Estimated Manufacturing Overhead / Estimated Machine Hours Predetermined Overhead Rate = $2,868,000 / 75,000 Predetermined Overhead Rate = $38.24 per machine hour
Journal Entries for April
Purchased Marine Propellers on Account from Headland Marine Corporation
Date: April 1 Account Debit: Raw Materials Inventory – Marine Propellers $8,850 Account Credit: Accounts Payable $8,850 Explanation: This entry records the purchase of marine propellers on account from Headland Marine Corporation.
Requisition for Clear Plastic by the Gauge Department
Date: April 2 Account Debit: Work in Process Inventory $275 (500 kg * $0.55/kg) Account Credit: Raw Materials Inventory – Clear Plastic $275 Explanation: This entry records the requisition of 500 kilograms of clear plastic by the Gauge Department for use in production.
Requisition for Electrical Wire by the Motor Testing Department
Date: April 3 Account Debit: Manufacturing Overhead $40 (200 m * $0.20/m) Account Credit: Raw Materials Inventory – Electrical Wire $40 Explanation: This entry records the requisition of 200 meters of electrical wire, an indirect material, by the Motor Testing Department.
Payment of Electricity Bill
Date: April 5 Account Debit: Manufacturing Overhead $1,000 Account Credit: Cash $1,000 Explanation: This entry records the payment of the electricity bill for the month, with most of the electricity being used for production.
Recording Direct Labor Costs
Date: April 10 Account Debit: Work in Process Inventory $145,000 Account Credit: Salaries and Wages Payable $145,000 Explanation: This entry records the direct labor costs incurred during April.
Insurance Cost for Cars Driven by Sales Personnel
Date: April 15 Account Debit: Selling and Administrative Expenses $2,500 Account Credit: Prepaid Insurance $2,500 Explanation: This entry records the insurance cost for the cars driven by sales personnel, which was prepaid in March.
Purchase of Metal Tubing on Credit
Date: April 18 Account Debit: Raw Materials Inventory – Metal Tubing $6,000 Account Credit: Accounts Payable $6,000 Explanation: This entry records the purchase of metal tubing on credit.
Payment on Outstanding Accounts Payable
Date: April 20 Account Debit: Accounts Payable $1,700 Account Credit: Cash $1,700 Explanation: This entry records the payment made on outstanding accounts payable.
Recording Indirect Labor Costs
Date: April 25 Account Debit: Manufacturing Overhead $26,000 Account Credit: Salaries and Wages Payable $26,000 Explanation: This entry records the indirect labor costs incurred during April.
Depreciation on Equipment
Date: April 30 Account Debit: Depreciation Expense $22,000 Account Credit: Accumulated Depreciation $22,000 Explanation: This entry records the depreciation expense on equipment for April.
Applying Manufacturing Overhead
Date: April 30 Account Debit: Work in Process Inventory $8,000 (8,000 machine hours * $38.24 per machine hour) Account Credit: Manufacturing Overhead $8,000 Explanation: This entry applies the manufacturing overhead to the Work in Process Inventory based on the machine hours used.
Completion of Job Number D45
Date: April 30 Account Debit: Finished Goods Inventory $2,200 Account Credit: Work in Process Inventory $2,200 Explanation: This entry records the transfer of costs from Work in Process Inventory to Finished Goods Inventory for job number D45.
Recording Sales on Account
Date: April 30 Account Debit: Accounts Receivable $350,000 Account Credit: Sales $350,000 Explanation: This entry records the sales made on account during April.
Recording Cost of Goods Sold
Date: April 30 Account Debit: Cost of Goods Sold $139,000 Account Credit: Finished Goods Inventory $139,000 Explanation: This entry records the cost of goods sold for the products sold during April.
In conclusion, the journal entries for the various events that occurred in April have been provided. These entries capture the financial transactions related to purchases, requisitions, expenses, labor costs, overhead application, sales, and cost of goods sold, ensuring accurate accounting records for Advanced Marine Technologies Ltd.
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