n its manufacturing plant. The company allocates manufacturing overhead on the basis of direct labour hours. The business expects to incur $ 3,500,000 of manufacturing costs during the year and to use 2,000,000 direct labour hours. The company’s inventory balances on April 1, 2022 ( the start of its fiscal year), were as follows: Raw Materials $ 32,000 Work in process 20,000 Finished Goods 48,000 During the year, the following transactions were completed: Raw materials were purchased on account, $ 170,000. Raw materials were issued from the storeroom for use in production, $ 180,000 ( 80 percent direct and 20 percent indirect). Employee salaries and wages were accrued as follows: direct labour, $ 200,000; indirect labour, $ 82,000; and selling and administrative salaries, $ 90,000. Utility costs were incurred in the factory, $ 65,000. Advertising costs were incurred, $ 100,000. Prepaid insurance expired during the year, $ 20,000 ( 90 percent related to factory operations, and 10 percent to selling and administration activities). Depreciation was recorded, $ 180,000 ( 85 percent related to factory assets, and 15 percent related to selling and administrative assets. Overhead cost was applied to production at the predetermined overhead rate calculated in Part 1 Goods costing $ 700,000 to complete were transferred to the finished goods warehouse. Sales for the year (all on account) totalled $ 1,000,000. These goods had cost $ 720,000 to manufacture. REQUIRED
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
QUESTION 1
QUESTION 1 –
Johnson Manufacturing company, a manufacturer of custom-made drones, uses a job order cost system to accumulate costs in its manufacturing plant. The company allocates manufacturing
|
Raw Materials |
$ 32,000 |
|
Work in process |
20,000 |
|
Finished Goods |
48,000 |
During the year, the following transactions were completed:
- Raw materials were purchased on account, $ 170,000.
- Raw materials were issued from the storeroom for use in production, $ 180,000 ( 80 percent direct and 20 percent indirect).
- Employee salaries and wages were accrued as follows: direct labour, $ 200,000; indirect labour, $ 82,000; and selling and administrative salaries, $ 90,000.
- Utility costs were incurred in the factory, $ 65,000.
- Advertising costs were incurred, $ 100,000.
- Prepaid insurance expired during the year, $ 20,000 ( 90 percent related to factory operations, and 10 percent to selling and administration activities).
Depreciation was recorded, $ 180,000 ( 85 percent related to factory assets, and 15 percent related to selling and administrative assets.- Overhead cost was applied to production at the predetermined overhead rate calculated in Part 1
- Goods costing $ 700,000 to complete were transferred to the finished goods warehouse.
- Sales for the year (all on account) totalled $ 1,000,000. These goods had cost $ 720,000 to manufacture.
REQUIRED
- Compute the predetermined Overhead rate.
- Prepare journal entries to record the transactions for the year.
- Prepare T-accounts for Raw Materials, Work in process, Finished Goods, Manufacturing Overhead and Cost of Goods Sold. Post the appropriate parts of your journal entries to these T-accounts. Compute the ending balance in each account. ( Do not forget to enter the opening balances in the inventory accounts).
- Is manufacturing over-applied or under-applied for the year? Prepare a
journal entry to close this balance to cost of Goods Sold. - Job 42 was one of the many jobs started and completed during the year. The job required $8,000 in direct materials and 39 hours of direct labour time at a total direct labour cost of $9,200. The job contained four units. If the company bills at a price 60% above the unit cost on the job cost sheet, calculating the selling price per unit charged to the customer.
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