Exercise 1--Cost accumulation procedure determination:

Classify these industries with respect to the type of cost accumulation procedure generally used--job order costingor process costing.

a. Meat k. Pianosb. Sugar l. Linoleumc. Steel m. Leatherd. Breakfast cereal n. Nylone. Paper boxes o. Baby foodsf. Wooden furniture p. Locomotivesg. Toys and novelties q. Office machines equipmenth. Coke r. Luggagei.Cooking utensils s. Paintj. Caskets t. Tires and tubes

Solution:

Job order cost procedure:(e), (f), (g), (i), (j), (k), (p), (q), (r) Process costing procedure:(a), (b), (c), (d), (h), (l), (m), (n), (o), (s), (t)

Exercise 2--Job order cost sheet:

Forge Machine Works collects its cost data by the job order cost accumulation procedure. For Job 642, the following data are available:

Direct Materials Direct Labor9/14 Issued $ 1,200Week of Sep. 20 180 hrs @ $6.20/hr9/20 Issued 662Week of Sep. 26 140 hrs @ $7.30/hr9/22 Issued 480   Factory overhead applied at the rate of $3.50 per direct labor hour.

Required:

1. The appropriate information on ajob cost sheet.2. The sales price of the job, assuming that it was contracted with a markup of 40% of cost.

Solution:

1.

Forge Machine WorksJob Order Cost Sheet--Job 642

Direct materials Direct labor Applied factory overheadDate Issued Amount Date (Week of) Hours Rate Cost Date (Week of) Hours Rate Cost

9/14 $1,200 9/20 180 $6.20 $1,116 9/20 180 $3.50 $6309/20 662 9/26 140 7.30 1,022 9/26 140 3.50 4909/22 480                

  --------       ----------       ----------

  $2,342=====

      $2,138======

      $1,120======

2.

Sales Price of job 642, contracted with a markup of 40% of cost:

Direct materials $2,342Direct labor 2,138Applied factory overhead 1,120   Total factory cost $5,600Markup 40% of cost 2,240  -------

  $7,840=====

Exercise 3--Job order costing:

The Cambridge Company usesjob order costing. At the beginning of the May, two jobs were in process:

    Job 369 Job372Materials $ 2,000 $ 700

  Direct labor 1,000 300

  Applied factory overhead 1,500 450There was no inventory of finished goods on May1. During the month, Jobs 373, 374, 375, 376, 378, and 379 were started.

Materials requisitions for May totaled $13,000, direct labor cost, $10,000, and actual factory overhead, $16,000. Factory overhead is applied at a rate of 150% of direct labor cost. The only job still in process at the end of May is No. 379, with costs of $1,400 for materials and $900 for direct labor. Job 376, the only finished job on hand at the end of May, has a total cost of $2,000.

Required:

1. T accounts for work in process, finished goods, cost of goods sold, factory overhead control, and applied factory overhead.

2. General journal entries to record:a. Cost of goods manufacturedb. Cost of goods soldc. Closing of over or underapplied factory overhead to cost of goods sold.

Solution:

T Accounts

Work in ProcessMay1 Balance Finished 

  Finished GoodsFrom  Cost of goods sod   38,300

No. 369            4,500No. 372            1,450

Materials        13,000

Direct labor     10,000

Factory O/H     15,000                        43,950

May31 Balance:

No. 379           3,650*

goods            40,300

*$1,400 + $900 + ($900 × 150%)

Factory Overhead Control                      16,000                        15,000

                        1,000                        16,000

Work in Process      40,300

May31 Balance:No.376                     2,000

 

Cost of Goods soldFrom finishedgoods                   38,300

UnderappliedOverhead               1,000                               39,300

 

 

Applied Factory Overhead                               15,000                            15,000

 

General journal entries to record:

Cost of goods manufactured: Dr CrFinished goods 40,300    Work in process 40,300Cost of goods sold:Cost of goods sold 38,300    Finished goods 38,300Closing of underapplied factory overhead to cost of goods sold:Cost of goods sold 1,000    Factory overhead control 1,000

Exercise 4--Job Order Cycle Entries:

Beaver, inc. provided the following data for January, 19B:

Materials and supplies:  Inventory, January 1, 19B $10,000Purchases on account 30,000Labor:  Accrued, January 1, 19B 3,000Paid during January (ignorepayroll taxes) 25,000Factory overhead costs:  Supplies (issued from materials) 1,500Indirect labor 3,500Depreciation 1,000

Other factory overhead costs (all from outside suppliers on account) 14,500

Work in process:  

  Job1 Job2 Job3 Total

Work in process January 1, 19B $ 1,000 -- -- $ 1,000

Job costs during January, 19B:        Direct materials 4,000 $6,000 $5,000 15,000Direct labor 5,000 8,000 7,000 20,000Applied factory overhead 5,000 8,000 7,000 20,000

Job 1 started in December, 19A, finished during January, and sold to a customer for $21,000 cash

Job 2 started in January, not yet finished.Job 3 started in January, finished during January, and now in the finished goods inventory awaiting customer's dispositionFinished goods inventory January 1, 19B.

Required:

Journal entries, with detail for the respective job orders and factory overhead subsidiary records, to to record the following transactions for the January:

1. Purchase of materials on account.

2. Labor paid.

3. Labor costdistribution.

4. Materials issued.

5. Depreciation for the month.

6. Acquisition of other overhead costs on credit.

7. Overhead applied to production.

8. Jobs completed and transferred to finished goods.

9. Sales revenue.

10.Cost of goods sold.

Solution:

Journal Entries:

    Subsidiary Record

Debit Credit

1 Materials   30,000             Accounts payable     30,000

2 Accrued payroll   25,000             Cash     25,000

3. Factory overhead control   3,500           Indirect labor 3,500      Work in process (WIP)   20,000          Job1 5,000            Job2 8,000            Job3 7,000    

            Payroll     23,500

4. Work in process   15,000          Job1 4,000            Job2 6,000            Job3 5,000      Factory overhead control   1,500          Supplies 1,500                Materials     16,500

5 Factory overhead control   1,000         Depreciation 1,000                Accumulated Depreciation     1,000

6 Factory overhead control   14,500          Other factory overhead costs 14,500                   Accounts payable     14,500

7 Work in process   20,000           Job1 5,000             Job2 8,000             Job3 7,000                Factory overhead control (or applied FOH)     20,000

8 Finished goods   34,000               Work in process (WIP)     34,000

         Job1 15,000             Job3 19,000    9 Cash   21,000               Sales     21,000

10Cost of goods sold   15,000               Finished goods     15,000

Exercise 5 Job Order Costing--Journal Entries, T Accounts, Income Statement

Hogle Company is a manufacturing firm that uses job ordercosting system. On January 1, the beginning of its fiscal year, the company's inventory balances were as follows:

Raw materialsWork in processFinished Goods

$20,000$15,000$30,000

The company applies overhead cost to jobs on the basis of machine-hours worked. For the current year, the company estimated that it would work 75,000 machine-hours and incur $450,000 in manufacturing overhead cost. The following transactions were recorded for the year

1. Raw materials were purchased on account, $410,000.

2. Raw materials were requisitioned for use in production, $380,000 ($360,000 direct materials and $20,000 indirect materials).

3. The following costs were incurred foremployee services: direct labor, $75,000; indirect labor, $110,000; salescommission, $90,000; and administrative salaries, $20,000.

4. Sales travel costs were $17,000.

5. Utility costsin the factory were $43,000.

6. Advertisingcosts were $180,000.

7. Depreciation was recorded for the year, 350,000 (80% relates to factory operations, and 20% relates to selling and administrative activities).

8. Insurance expired during the year, $10,000 (70% relates to factory operations, and 30% relates to selling and administrative activities).

9. Manufacturing overhead was applied to production. Due to greater than expected demand for its products, the company worked 80,000 machine-hours during the year.

10.Goods costing $9,00,000 to manufacture according to theirjob costsheets were completed during the year.

11.Goods were sold on account to customers during the year at a total selling price of $1,500,000. The goods cost $870,000 to manufacture according to theirjob costsheets.

Required:

1. Prepare journal entries to record the preceding transactions.

2. Post the entries in (1) above to T-accounts (don't forget to enter the beginning balances in the inventory accounts).

3. Is manufacturing overhead underapplied or overapplied for the year? Prepare journal entry to close any balance in the manufacturing overhead account to cost of goods sold (COGS). Do not allocate the balance between ending inventories and cost of goods sold (COGS).

4. Prepare anincome statementfor the year.

Solution:

1: Journal Entries

1 Raw materials 410,000      Accounts payable   410,000

2 Work in process 360,000    Manufacturing overhead 20,000      Raw materials   380,000

3 Work in process 75,000    Manufacturing overhead 110,000    Salescommissionexpense 90,000    Administrative salaries expense 200,000      Salaries and wages payable   475,000

4 Sales travel expense 17,000      Accounts payable   17,000

5 Manufacturing overhead 43,000      Accounts payable   43,000

6 Advertisingexpense 180,000      Accounts payable   180,000

7 Manufacturing overhead 280,000    Depreciation expense 70,000      Accumulated depreciation   350,000

8 Manufacturing overhead 7,000    Insurance expense 3,000      Prepaid insurance   10,000

9* Work in process 480,000      Manufacturing overhead   480,000

10 Finished Goods 900,000      Work in process   900,000

11 Accounts Receivable 1,500,000      Sales   1,500,000

  Cost of goods sold 870,000      Finished goods   870,000

*The predetermined overhead rate for the year would be computed as follows:

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total units in the allocation base

= $450,000 / 75,000 machine-hours

= $6 per machine-hour

Based on the 80,000 machine-hours actually worked during the year, the company would have applied $480,000 in overhead cost to production: 80,000 machine-hours×$6 per machine-hour = $480,000.

2: T Accounts

Accounts Receivable11      1,500,000  

   Finished Goods

Bal.       30,00010        900,000

(11)        870,000

   Accounts Payable

  (1)         410,000(4)           17,000(5)           43,000(6)         180,000

   Sales

  (11)     1,500,000

   Sales Commissions Expenses

(3)           90,000  

   Advertising expense

(6)         180,000  

  Raw MaterialsBal.       20,000(1)        410,000

(2)          380,000

Bal.       50,000     

Prepaid Insurance

  (8)            10,000

   Salaries and Wages Payable

  (3)         475,000

   Cost of goods sold

(11)        870,000  

   Administrative Salary Expense

(3)         200,000  

   Depreciation Expenses

(7)           70,000  

  Work in ProcessBal.     20,000(2)     360,000(3)       75,000(9)     480,000  

(10)    900,000

Bal.      30,000  

Accumulated Depreciation

  (7)      350,000

   Manufacturing Overhead

(2)       20,000(3)     110,000(5)       43,000(7)     280,000(8)         7,000

(9)      480,000

           460,000            480,000

  Bal.        20,000

   Insurance Expense

(8)         3,000  

   Sales Travel Expense

(4)       17,000  

3: Under or Overapplied manufacturing overhead:

Manufacturing overhead is overapplied for the year. The entry to close it out to cost of goods sold is as follows:

Manufacturing overhead 20,000

  Cost of goods sold   20,000

4: Income Statement

HOGLE COMPANYIncome Statement

For the Year Ended December 31Sales   $1,500,000Less cost of goods sold ($870,000 - $20,000 overapplied O/H   850,000

    --------------Gross margin   650,000Less selling and administrative expenses:         Commission expense $90,000       Administrative salaries expense 200,000       Sales travel expense 17,000       Advertising expense 180,000  

     Depreciation expense 70,000       Insurance expense 3,000 560,000  ------------ -------------Net operating income   $90,000

   

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A  Purchased raw materials

B  Direct material requisition to be used on jobs

C  Direct labor payroll based on time ticket

D  Indirect materials used

E  Indirect labor payroll

F  Other overhead costs incurred

G  Overhead applied to jobs (direct labor dollars ¥ 80% predetermined overhead rate)

H  Transfer completed jobs to finished goods inventory

I  Transferred sold jobs to cost of goods sold

J  Paid wages

The journal entries that follow support the transactions in Figure 5 .Job Order Cost System Journal Entries General JournalDate Account Title and Description Ref. Debit Credit

20X0

Dec. 31 Raw Materials Inventory 15,000

(A) Accounts Payable 15,000

Purchased raw materials on credit

(B) Work-in-Process Inventory 16,500

Raw Materials Inventory 16,500

Raw materials used in jobs 100–102

(C) Work-in-Process Inventory 21,000

Date Account Title and Description Ref. Debit Credit

Wages Payable 21,000

Direct labor incurred jobs 100–102

(D) Factory Overhead-Indirect Materials 5,700

Raw Materials Inventory 5,700

Indirect materials requisitioned

(E) Factory Overhead-Indirect Labor 10,000

Wages Payable 10,000

Indirect labor incurred

(F)Factory Overhead-Factory Rent *

1,200

Factory Overhead-Factory Utilities *2,500

Accounts Payable 3,700

Overhead costs incurred

(G) Work-in-Process Inventory 16,800

Factory Overhead 16,800

Applied overhead for jobs 100–102

(H) Finished Goods Inventory 45,200

Date Account Title and Description Ref. Debit Credit

Work-in-Process Inventory 45,200

Transfer completed jobs 100 & 101

(I) Cost of Goods Sold 35,500

Finished Goods Inventory 35,500

** Transfer delivered jobs 99 & 100

Journal Entries:(1)

Raw Materials 60,000 Dr.

Accounts Payable 60,000 Cr.

(2)

Work in process 50,000 Dr.

Manufacturing overhead 2,000   Dr.

Raw materials   52,000 Cr.

(3)    

Work in process 60,000 Dr.

Manufacturing overhead 15,000   Dr.

Salaries and wages   75,000 Cr.

(4)

Manufacturing overhead 40,000 Dr.

Accounts payable   40,000 Cr.

(5)

Manufacturing overhead 20,000   Dr.

Property taxes payable   13,000 Cr.

Prepaid insurance   7,000 Cr.

(6)

Work in process 18,000  

Manufacturing overhead   18,000  

(7)

Work in process 90,000 Dr.

Manufacturing overhead   90,000 Cr.

(8)    

Salaries expenses 30,000 Dr.

Salaries and wages payable   30,000 Cr.

(9)

Depreciation expense 7,000 Dr.

Accumulated depreciation   7,000 Cr.

(10)    

Advertising expense 42,000 Dr

Other selling and administrative expense 8,000 Dr.

Accounts payable   50,000 Cr.

(11)    

Finished goods 158,000 Dr.

  Work in process   158,000 Cr.

(12)    

Accounts receivable 225,000  

  Sales   225,000  

(13)    

Cost of goods sold 118,500  

Finished goods 118,500

T Accounts:Accounts Receivable Accounts Payable Capital Stock

              xx(12)  225,000

                  xx (1)       60,000 (4)       40,000 (10)     50,000

           xx

               

Prepaid Insurance   Salaries and Wages Payable   Retained Earnings

              xx

(5)       7,000

                     xx(3)       75,000(8)       30,000

               xx

               

Raw Materials   Property Taxes Payable   Sales

Bal.      7,000(1)     60,000

(20)   52,000 

                    xx(5)      13,000   

    (12) 225,000

Bal.     15,000              

            Cost of Goods Sold

Work in Process Salaries expenses (13)  118500

Bal.     30,000(2)      50,000(3)      60,000(7)      90,000

(11)  158,000 (8)  30,000

Depreciation expenses

(9)    7,000

Bal.     72,000              

             

Finished Goods   Advertising Expenses      

Bal.     10,000(11)  158,000

(13)  118,500   (10)  42,000        

Bal.     49,000

Accumulated Depreciation Other Selling and Administrative expenses

               xx(6)     18,000(9)      7,000

(10)   8,000

Manufacturing Overhead

(2)         2000(3)      15,000(4)      40,000(5)      20,000

(7)     90,000

(6)      18,000

Bal.       5,000

Explanation of entries:

(1) Raw materials purchased.(2) Direct and indirect materials issued into production. (8) Administrative salaries expenses incurred.

(3) Direct and indirect factory labor cost incurred. (9) Depreciation recorded on office equipment.

(4) Utilities and other factory costs incurred. (10) Advertising and other expenses incurred

(5) Property taxes and insurance incurred on the factory.

(11) COGM  transferred into finished goods.

(6) Depreciation recorded on the factory assets. (12) sale of job 1 recorded.

(7) Overhead cost applied to work in process. (13) Cost of goods sold recorded for job 1.

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