In job order costing, the manufacturing overhead is the cost that relates to the whole production operation but cannot be charged directly to the specific jobs. Likewise, the journal entry for manufacturing overhead starts when the company assigns all the indirect production costs to the overhead first before transferring to the work in process
of the specific job. When the company needs to assign the indirect production costs of overhead to work in process of a specific job, it needs to do so through the use of the predetermined overhead rate. The company can make the manufacturing overhead journal entry when assigning the indirect costs to overhead by debiting the manufacturing overhead account and crediting all the indirect production
costs. In this journal entry, raw materials and labor costs only include the indirect cost as the direct cost can be assigned to the work in process of the specific job directly. Other indirect production costs include utilities, insurance, depreciation, property tax, repairs and maintenance, etc. After determining the predetermined overhead rate, the company can make the journal entry to assign the overhead cost to
work in process for a specific job as below: For example, in January 2021, the manufacturing company ABC uses $1,500 of the indirect raw materials and $1,000 of indirect labor cost. Other indirect production costs, including depreciation, utilities, insurance, property tax, maintenance and repairs, have the total amount of $6,000. The company ABC expects to incur the manufacturing overhead cost of $100,000 with the 20,000 machine hours for a whole year. And, in January 2021, Job A has used
1,600 machine hours. What is the manufacturing overhead journal entry?
Assigning indirect costs to manufacturing overhead The company ABC can make the manufacturing overhead journal entry when assigning the indirect costs to overhead as below:
Assigning manufacturing overhead to work in process With the information in the example above, the company ABC can determine the overhead rate as below: Predetermined overhead rate = $100,000 / 20,000 hours = $5/hr Overhead assigned to Job A = 1,600 x 5 = $8,000 Hence, the company can make the journal entry to assign the manufacturing overhead to the work in process of Job A as below:
After this journal entry, the balance of manufacturing overhead remains $500 (8,500 – 8,000) on the debit side of the ledger. This a sign of underapplied overhead; though whether it is under or overapplied overhead, it will be shown at the end of the accounting period. Although you have seen the job order costing system using both T-accounts and job cost sheets, it is necessary to understand how these transactions are recorded in the company’s general ledger. Journal Entries to Move Direct Materials, Direct Labor, and Overhead into Work in ProcessDinosaur Vinyl keeps track of its inventory and orders additional inventory to have on hand when the production department requests it. This inventory is not associated with any particular job, and the purchases stay in raw materials inventory until assigned to a specific job. For example, Dinosaur Vinyl purchased an additional $10,000 of vinyl and $500 of black ink to complete Macs & Cheese’s billboard. If the purchase is made on account, the entry is as shown: As shown in Figure 4.20, for the production process for job MAC001, the job supervisor submitted a materials requisition form for $300 in vinyl, $100 in black ink, $60 in red ink, and $60 in gold ink. For the finishing process for Job MAC001, $120 in grommets and $60 in finishing wood were requisitioned. The entry to reflect these actions is:  The production department employees work on the sign and send it over to the finishing/assembly department when they have completed their portion of the job. The direct cost of factory labor includes the direct wages paid to the employees and all other payroll costs associated with that labor. Typically, this includes wages and the payroll taxes and fringe benefits directly tied to those wages. The accounting system needs to keep track of the labor and the other related expenses assigned to a particular job. These records are typically kept in a time ticket submitted by employees daily. On April 10, the labor time sheet totaling $30 is recorded for Job MAC001 through this entry: The assembly personnel in the finishing/assembly department complete Job MAC001 in two hours. The labor is recorded as shown: Indirect materials also have a materials requisition form, but the costs are recorded differently. They are first transferred into manufacturing overhead and then allocated to work in process. The entry to record the indirect material is to debit manufacturing overhead and credit raw materials inventory. Indirect labor records are also maintained through time tickets, although such work is not directly traceable to a specific job. The difference between direct labor and indirect labor is that the indirect labor records the debit to manufacturing overhead while the credit is to factory wages payable. Dinosaur Vinyl’s time tickets indicate that $4,000 in indirect labor costs were incurred during the period. The entry is: Dinosaur Vinyl also records the actual overhead incurred. As shown in Figure 4.18, manufacturing overhead costs of $21,000 were incurred. The entry to record these expenses increases the amount of overhead in the manufacturing overhead account. The entry is: The amount of overhead applied to Job MAC001 is $165. The process of determining the manufacturing overhead calculation rate was explained and demonstrated in Accounting for Manufacturing Overhead. The journal entry to record the manufacturing overhead for Job MAC001 is: Journal Entry to Move Work in Process Costs into Finished GoodsWhen each job and job order cost sheet have been completed, an entry is made to transfer the total cost from the work in process inventory to the finished goods inventory. The total cost of the product for Job MAC001 is $931 and the entry is: Journal Entries to Move Finished Goods into Cost of Goods SoldWhen the sale has occurred, the goods are transferred to the buyer. The product is transferred from the finished goods inventory to cost of goods sold. A corresponding entry is also made to record the sale. The sign for Job MAC001 had a sales price of $2,000 and a cost of $931. These are the entries to record the transfer of goods and sale to the buyer: The resulting accounting is shown on the company’s income statement:
Think It ThroughOngoing Overapplied OverheadAt the end of each year, manufacturing overhead is analyzed, and an adjusting entry is made to dispose of the under- or overapplied overhead. How would you advise a company that has had overapplied overhead for each of the last five years? What is the journal entry for manufacturing overhead?The company can make the manufacturing overhead journal entry when assigning the indirect costs to overhead by debiting the manufacturing overhead account and crediting all the indirect production costs.
Which account is manufacturing overhead applied to when using a job costing system?Manufacturing Overhead Account
The overhead account is debited for the actual overhead costs as incurred. The overhead account is credited for the overhead costs applied to production in the work-in-process account.
What is manufacturing overhead entries on job cost sheet?Manufacturing overhead (MOH) cost is the sum of all the indirect costs which are incurred while manufacturing a product. It is added to the cost of the final product along with the direct material and direct labor costs.
Which of the following is a correct journal entry to record direct labor cost?The journal entry to record the total direct labor is to debit the Work-in-Process account and credit the Salaries and Wages Payable account.
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Which of the following is a correct journal entry to apply manufacturing overhead cost to jobs?
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