Journal entries, T-accounts and source documents. Production Company produces gadgets for the coveted small appliance market. The following data reflects activity for the year 2008.

Production Co. uses a normal cost system and allocates overhead to work in process at a rate of $2.50 per direct manufacturing labor dollar. Indirect materials are insignificant so there is no inventory account for indirect materials.

1. Prepare journal entries to record the transactions for 2008 including an entry to close out over- or under allocated overhead to cost of goods sold. For each journal entry indicate the source document that would be used to authorize each entry. Also note which subsidiary ledger, if any, should be referenced as backup for the entry.

2. Post the journal entries to T-accounts for all of the inventories, Cost of Goods Sold, the Manufacturing—Overhead Control Account, and the Manufacturing Overhead Allocated Account.

Transcribed Image Text:

Costs incurred: Purchases of direct materials (net) on credit $124,000 Direct manufacturing labor cost Indirect labor 80,000 54,500 30,000 Depreciation, factory equipment Depreciation, office equipment Maintenance, factory equipment Miscellaneous factory overhead Rent, factory building Advertising expense 7,000 20,000 9,500 70,000 90,000 30,000 Sales commissions Inventories: December 31, 2008 January 1, 2008 $ 9,000 6,000 $11,000 21,000 Direct materials Work in process Finished goods 69,000 24,000