Naba and Amna Company is a manufacturing firm that uses job-order costing. At the beginning of the year, the company’s inventory balances were as follows: Raw Material Rs 36,000 Work in Process Rs 41,000 Finished Goods Rs 104,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would 21,000 machine-hours and incurs 210,000 in manufacturing overhead cost. The following transactions were recorded for the year. Raw materials were purchased Rs 352,000. Raw materials were requisitioned for use in production, Rs 360,000 (Rs 322,000 direct and Rs 38,000 indirect) Raw material returned to vendor Rs 6,000 and indirect materials were returned to the storeroom Rs 2,000. The gross payroll for the month was Rs 539,000. The income taxes were 10% and Federal Taxes withheld were 5% The following employee costs were incurred: Direct Labor 360,000 Indirect Labor 68,000 Selling and Admin Salaries 111,000 Selling costs Rs 153,000 Factory utility cost, Rs 29,000 Depreciation for the year was Rs 102,000 of which Rs 93,000 is related to factory operations and Rs 9,000 is related selling and admin activities. Manufacturing overhead was applies to jobs. The actual level of activity for the year was 19,000 machine-hours. The cost of goods manufactured for the year was Rs 870,000 Sales for the year totaled Rs 1,221,000 and the cost on the job cost sheets of the goods that were sold totaled Rs 855,000 The balance in the manufacturing overhead account was closed out to cost of goods sold. Required: Prepare the appropriate journal entry for each of the items above under job order costing with over or under applied FOH. Prepare general ledger of Material, Work in Process, FOH Control Account, Finished Goods, Cost of Goods Sold. Income Statement of the period. Differentiate between job order costing and process costing.
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.
Naba and Amna Company is a manufacturing firm that uses job-order costing. At the beginning of the year, the company’s inventory balances were as follows:
Raw Material Rs 36,000
Work in Process Rs 41,000
Finished Goods Rs 104,000
The company applies
- Raw materials were purchased Rs 352,000.
- Raw materials were requisitioned for use in production, Rs 360,000 (Rs 322,000 direct and Rs 38,000 indirect)
- Raw material returned to vendor Rs 6,000 and indirect materials were returned to the storeroom Rs 2,000.
- The gross payroll for the month was Rs 539,000. The income taxes were 10% and Federal Taxes withheld were 5%
- The following employee costs were incurred:
- Direct Labor 360,000
- Indirect Labor 68,000
- Selling and Admin Salaries 111,000
- Selling costs Rs 153,000
Factory utility cost , Rs 29,000Depreciation for the year was Rs 102,000 of which Rs 93,000 is related to factory operations and Rs 9,000 is related selling and admin activities.- Manufacturing overhead was applies to jobs. The actual level of activity for the year was 19,000 machine-hours.
- The cost of goods manufactured for the year was Rs 870,000
- Sales for the year totaled Rs 1,221,000 and the cost on the job cost sheets of the goods that were sold totaled Rs 855,000
- The balance in the manufacturing overhead account was closed out to cost of goods sold.
Required:
- Prepare the appropriate
journal entry for each of the items above underjob order costing with over or under applied FOH. - Prepare general ledger of Material, Work in Process, FOH Control Account, Finished Goods, Cost of Goods Sold.
- Income Statement of the period.
- Differentiate between job order costing and
process costing .
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