Question

Horton Company uses a normal costing system. Factory overhead is allocated on the basis of labor hours. At the beginning of the year, management estimated that the company would incur $1,050,000 of manufacturing overhead costs and use 70,000 labor hours. The company recorded the following events during the month of March.
(a) Purchased $800,000 of materials on account.
(b) Used $600,000 of materials in production, of which $80,000 were used as indirect materials.
(c) Incurred $250,000 of direct labor costs and $50,000 of indirect labor costs.
(d) Recorded depreciation on equipment for the month, $22,000.
(e) Paid $8,000 cash for utilities and other miscellaneous items for the manufacturing plant.
(f) Used 10,000 labor hours during March.
The debit to Work-in-Process Inventory account for materials is:_______.
a. $80,000
b. $520,000
c. $600,000
d. $800,000
The credit to Manufacturing Overhead Allocated account is:________.
a. $150,000
b. $140,000
c. $180,000
d. $160,000

Answer 1

Answer:

b. $520,000

a. $150,000

Explanation:

The debit to work in process Inventory account for materials is:$ 520,000

Materials Purchased  $ 800,000

Materials  Requisitioned $ 600,00

Less Indirect Materials     $ 80,000

Direct Materials        $ 520,000

The total Manufacturing Overheads are

Manufacturing Overheads  $ 160,000

Indirect Materials     $ 80,000

Indirect Labor        $ 50,000

Depreciation           $ 22,000

Utilities                     $ 8000

But the applied Manufacturing Overhead is calculated on direct labor hours as follows

Manufacturing Overhead Rate = $ 1050,000/ 70,000 = 15$ per hour

As 10,000 hours are used so 15 * 10,000=  $ 150,000

The applied overhead is credited to the Manufacturing account which is $ 150,000.