[scman61]

My question is:
I have the following estimated(applied) costs.
1. Purchase Raw Materials 6000, 5700 direct and 300 indirect on account.
2. Estimated labor 10500 on account.

For Materials I debited raw materials 5700 and overhead 300 and credited accounts payable for 6000

For Labor I debited Work in process 10500 and wages payable 10500.

Actual labor turned out to be 9975 so I credited working process for the difference of 525 and debited overhead for 525.

Is this correct I am having a hard time understanding how to handle applied upfront and actuals.

Thanks

[Criado]

For Labor I debited Work in process 10500 and wages payable 10500.
=>the problem said it is only estimate, so I believe you should just debit WIP and credit OH.

Actual labor turned out to be 9975 so I credited working process for the difference of 525 and debited overhead for 525
=>Debit OH and Credit Wage Payable

[morgaine300]

The materials is incorrect. When you first purchase it, you put all of it into materials. Nothing goes into WIP or overhead until it is put into process. At that time, it will come out of materials, and the 5700 would go into WIP and the 300 into overhead -- but not when it's purchased.

I quite personally don't get the thing about estimated wages. I don't know if that's meant to be an end-of-year adjusting entry or what. In either case, whatever you do with it the first time is what you need to un-do. For instance, if you've originally put it into wages payable (probably the best place for it), then when it turns out to be less, then it has to come back out of the wages payable because that extra amount isn't due. There isn't any point to putting it into overhead because it doesn't exist. (Not to mention that a debit to overhead is adding to it -- why add to overhead wages that don't exist?)

As a note, wages do not come out of overhead. This is probably referring to direct labor, which just goes straight into WIP. If there's any indirect involved, I suspect the problem would say so, and it would go into overhead, not come out of it. You put things into overhead when you are charging them somewhere, and you only take them out of overhead, as a lump sum including all overhead items, when you apply the overhead to WIP using a rate. Individual items such as labor do not come out of overhead, and that account would not be involved here in any way.