Factory overhead is applied to jobs at the rate of 60% of direct labor cost. The actual factory overhead incurred for July was $75,000. Jobs completed during the month totaled $301,200.

(a) Prepare the journal entries to record

(1) the application of factory overhead to production during July and

(2) the jobs completed during July.

(b) What is the balance of the factory overhead account on July 31?

(c) Was factory overhead overapplied or underapplied on July 31?

(d) Determine the cost of the unfinished jobs on July 31.

Answer and Explanation:

a. The journal entries are shown below:

1. Work in Process $72,000 ($120,000 * 60%)

To Factory Overhead $72,000

(Being the application of factory overhead is recorded)

2. Finished Goods $301,200

To Work in Process $301,200

(Being the job completed is recorded)

b. The balance is

= $75,000 - $72,000

= $3,000 debit

c. Moreover, it is under applied as the actual one is greater than the standard one

d. Now the cost of unfinished goods is

= Opening balance + direct material + direct labor + overhead - cost of goods finished

= $53,200 + $147,000 + $120,000 + $72,000 - $301,200

= $91,000

We simply applied the above formula