Skippy Scooters manufactures motor scooters. The company has automated production, so it allocates manufacturing overhead based on machine hours. Skippy expects to incur $240,000 of manufacturing overhead costs and to use 4,000 machine hours during 2011. At the end of 2010, Skippy reported the following inventories:
Work in process inventory
Finished goods inventory
During January 2011, Skippy actually used 300 machine hours and recorded the following transactions:
a. Purchased materials on account, $31,000
b. Used direct materials, $39,000
c. Manufacturing wages incurred totaled $40,000, of which 90% was direct labor and 10% was indirect labor
d. Used indirect materials, $3,000
e. Incurred other manufacturing overhead, $13,000 on account
f. Allocated manufacturing overhead for January 2011
g. Cost of completed motor scooters, $100,000
h. Sold scooters on account, $175,000; cost of scooters sold, $95,000
1. Compute Skippy’s predetermined manufacturing overhead rate for 2011.
2. Journalize the transactions in the general journal.
3. Enter the beginning balances and then post the transactions to the following accounts: Materials inventory, Work in process inventory, Finished goods inventory, Wages payable, Manufacturing overhead, and Cost of goods sold.
4. Close the ending balance of Manufacturing overhead. Post your entry to the T-accounts.
5. What are the ending balances in the three inventory accounts and in Cost of goods sold?