Armand Incorporated applies manufacturing overhead by using a predetermined rate of 300% of direct labour cost. For Job No. 800, the direct material costs and the direct labour costs were $72,000 and $38,000, respectively. If Armand adds a 50% markup on total cost to generate a profit, which of the following choices is the best depiction of a portion of the accounting needed to record the sale of Job No. 800?
A)a debit to accounts receivable for $224,000
B)a debit to finished goods inventory for $224,000.
C)a debit to finished goods inventory for $336,000.
D)a credit to sales revenue for $224,000.
E)a debit to accounts receivable for $336,000.

Question

Quizplus · Accepted Answer

The total cost for Job No. 800 is calculated as follows: Direct materials ($72,000) + Direct labor ($38,000) + Manufacturing overhead (300% of $38,000 = $114,000) = $224,000. With a 50% markup, the sale price is $224,000 + (50% of $224,000) = $336,000. Therefore, the correct accounting entry for the sale would be a debit to accounts receivable for $336,000.

Armand Incorporated Applies Manufacturing Overhead by Using a Predetermined Rate