Hoover Inc. uses a job‐order costing system

Hoover Inc. uses a job‐order costing system. The company’s inventory balances on February 1, the start of its fiscal year, were as follows:

Raw Materials Inventory $69,325
Work in Process Inventory $55,100
Finished Goods Inventory $81,256

During the year, the following transactions were completed:
a. Raw materials were purchased on account, $215,221.
b. Raw materials were issued from the storeroom for use in production, $198,000 (70% direct and 30% indirect).
c. Employee salaries and wages were accrued as follows: direct labor, $243,300; indirect labor, $98,750; and selling and administrative salaries, $72,340.
d. Utility costs were incurred in the factory, $79,233.
e. Advertising costs were incurred. $110,600.
f. Prepaid insurance expired during the year, $35,000 (80% related to factory operations, and 20% related to selling and administrative activities).
g. Depreciation was recorded, $192,100 (75% related to factory assets, and 25% related to selling and administrative assets).
h. Manufacturing overhead was applied to jobs at the rate of 160% of direct labor cost.
i. Goods that cost $720,200 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
j. Sales for the year totaled $1,293,300 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $725,825.

Submit your assignment as an Excel spreadsheet with each tab labeled by item number. Demonstrate the following:
1. Prepare the journal entries to record the transactions for the year.
2. Prepare the T‐accounts for raw materials inventory, work in process inventory, finished goods inventory, manufacturing overhead, and cost of goods sold. Don’t forget to enter the beginning balances in the inventory accounts.
3. Is manufacturing overhead underapplied or overapplied for the year? Prepare a journal entry to close this balance to cost of goods sold.

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Fabricator Inc., a specialized equipment manufacturer, uses a job order costing system

Fabricator Inc., a specialized equipment manufacturer, uses a job order costing system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $ 3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn’t make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to “design out” direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won’t be surprised if next year the rate is $4,000 per direct labor hour. I’m also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30-minute error in our estimate of assembly time is worth $1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business.

1. What is the engineer’s concern about the overhead rate going “up and up”?
2. What did the engineer mean about the large overhead rate being a disadvantage when placing bids and seeking new business?
3. What do you think is a possible solution?

Solution Word Count: 267 words

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