Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its job cost sheet reports direct materials of $6,400, direct labor of $3,400, and applied overhead of $2,720. Custom Cabinetry applies overhead at the rate of 80% of direct labor cost. During July, Job 120 is sold (on account) for $30,000, Job 121 is started and completed, and Job 122 is started and still in process at the end of the month. Custom Cabinetry incurs the following costs during July. July Product Costs Job 120 Job 121 Job 122 Total Direct materials $ 2,500 $ 8,800 $ 2,800 $ 14,100 Direct labor 2,800 4,800 2,200 9,800 Overhead applied ? ? ? ? 1. Prepare journal entries for the following in July. Direct materials used in production. Direct labor used in production. Overhead applied. The sale of Job 120. Cost of goods sold for Job 120. 2. Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts. (Assume there are no jobs in Finished Goods Inventory as of June 30.) Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory general ledger accounts. (Assume there are no jobs in Finished Goods Inventory as of June 30.)
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its
| July Product Costs | Job 120 | Job 121 | Job 122 | Total | ||||||||
| Direct materials | $ | 2,500 | $ | 8,800 | $ | 2,800 | $ | 14,100 | ||||
| Direct labor | 2,800 | 4,800 | 2,200 | 9,800 | ||||||||
| Overhead applied | ? | ? | ? | ? | ||||||||
1. Prepare
- Direct materials used in production.
- Direct labor used in production.
- Overhead applied.
- The sale of Job 120.
- Cost of goods sold for Job 120.
2. Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts. (Assume there are no jobs in Finished Goods Inventory as of June 30.)
Compute the July 31 balances of the Work in Process Inventory and the Finished Goods Inventory general ledger accounts. (Assume there are no jobs in Finished Goods Inventory as of June 30.)
Job costing: It is a method of costing where in all the costs like direct material, direct labor and manufacturing overhead are accumulated to a particular job. This method is suitable for jobs where the work is to be performed according to the specifications of a customer and in separate batches.
Pre-determined overhead allocate rate: It the rate of allocating the expected overheads to the actual units or hours for a specific accounting period.
Raw materials: It is the basic input required to manufacture the finished products. The raw materials are processed by incurring conversion costs and other overhead to convert them into finished products.
Manufacturing overhead: It is the indirect cost incurred as a part of manufacturing the products. These costs are not directly related to the units manufactured. So they are allocated to the manufactured units based on estimated cost drivers.
Work-in process: This is the cost of units which were semi-finished in a particular period. Further work should be done and cost should be incurred to make them into finished products.
Finished goods: These are the units which were completed by the manufacturing process and were ready to sale.
Under/over applied overhead: If the overhead applied is more than the actual overhead, then the overhead is said to be over applied. If the overhead applied is less than the actual overhead then the overhead is said to be under applied.
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