Oberti Guitar Company makes high-quality customized guitars. Oberti uses a job order costing system. Because the guitars are handmade, the company applies overhead based on direct labor hours. At the beginning of the year, the company estimated that total manufacturing overhead costs would be $300,000 and that 20,000 direct labor hours would be worked. At year-end, Anthony, the company's founder and CEO, gives you the following information regarding Oberti's operations. 1. The beginning balances in the inventory accounts were: Raw Materials Inventory $8,000 Work in Process Inventory $26,000 Finished Goods Inventory $32,000 2. During the year, the company purchased raw materials costing $97,000. All purchases were made on account. 3. The production department requisitioned $100,000 of raw materials for use in production. Of those, 70% were direct materials and 30% were indirect materials. 4. The company used 21,000 direct labor hours at a cost of $14 per hour during the year (credit Wages Payable). 5. The company used 6,500 indirect labor hours at a cost of $10 per hour (credit Wages Payable). 6. The company paid $178,000 for insurance, utilities, and property taxes on the factory. 7. The company recorded factory depreciation of $40,000. 8. The company applied manufacturing overhead to inventory based on the 21,000 labor hours actually worked during the year. 9. Products costing $665,000 were completed during the year and transferred to the Finished Goods Inventory. 10. During the year, the company sold products costing a total of $672,000. 11. The company closes under- and overapplied overhead to Cost of Goods Sold.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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### Oberti Guitar Company: A Case Study in Job Order Costing

Oberti Guitar Company specializes in the production of high-quality customized guitars. The company uses a job order costing system due to the handmade nature of its products, applying overhead based on direct labor hours. At the start of the year, projections indicated total manufacturing overhead costs of $300,000 and an expected 20,000 direct labor hours.

**Key Financial Data from Oberti Guitar Company's Operations**

**Inventory at Year Start:**
1. **Beginning Balances:**
   - Raw Materials Inventory: $8,000
   - Work in Process Inventory: $26,000
   - Finished Goods Inventory: $32,000

**Operations During the Year:**
2. The company purchased raw materials worth $97,000 on account during the year.
3. The production department requisitioned $100,000 in raw materials for use:
   - 70% for direct materials
   - 30% for indirect materials
4. Direct labor usage amounted to 21,000 hours at $14 per hour, credited to Wages Payable.
5. Indirect labor usage was 6,500 hours at $10 per hour, also credited to Wages Payable.
6. Overhead expenses, including insurance, utilities, and property taxes, totaled $178,000.
7. Factory depreciation was recorded at $40,000.
8. Manufacturing overhead was applied to inventory based on 21,000 direct labor hours.
9. Products costing $665,000 were completed and transferred to the Finished Goods Inventory.
10. Sales for the year amounted to $672,000, with the associated costs recorded.
11. Any under- or over-applied overhead was adjusted to the Cost of Goods Sold.

**Understanding the Data:**

1. **Inventory Balances** provide insight into the company's material stock and production progress at the beginning of the year.
2. **Raw Material Purchases** signify the investment in input materials needed for production.
3. **Material Requisition** reflects the allocation between direct and indirect uses in the production process.
4. **Direct and Indirect Labor** illustrate the wages paid and labor intensity involved in production.
5. **Overhead Costs** highlight fixed and variable factory cost elements.
6. **Depreciation** shows the wear and tear or usage impact on the company's factory equipment.
7. **Overhead Application** ensures that manufacturing costs are
Transcribed Image Text:--- ### Oberti Guitar Company: A Case Study in Job Order Costing Oberti Guitar Company specializes in the production of high-quality customized guitars. The company uses a job order costing system due to the handmade nature of its products, applying overhead based on direct labor hours. At the start of the year, projections indicated total manufacturing overhead costs of $300,000 and an expected 20,000 direct labor hours. **Key Financial Data from Oberti Guitar Company's Operations** **Inventory at Year Start:** 1. **Beginning Balances:** - Raw Materials Inventory: $8,000 - Work in Process Inventory: $26,000 - Finished Goods Inventory: $32,000 **Operations During the Year:** 2. The company purchased raw materials worth $97,000 on account during the year. 3. The production department requisitioned $100,000 in raw materials for use: - 70% for direct materials - 30% for indirect materials 4. Direct labor usage amounted to 21,000 hours at $14 per hour, credited to Wages Payable. 5. Indirect labor usage was 6,500 hours at $10 per hour, also credited to Wages Payable. 6. Overhead expenses, including insurance, utilities, and property taxes, totaled $178,000. 7. Factory depreciation was recorded at $40,000. 8. Manufacturing overhead was applied to inventory based on 21,000 direct labor hours. 9. Products costing $665,000 were completed and transferred to the Finished Goods Inventory. 10. Sales for the year amounted to $672,000, with the associated costs recorded. 11. Any under- or over-applied overhead was adjusted to the Cost of Goods Sold. **Understanding the Data:** 1. **Inventory Balances** provide insight into the company's material stock and production progress at the beginning of the year. 2. **Raw Material Purchases** signify the investment in input materials needed for production. 3. **Material Requisition** reflects the allocation between direct and indirect uses in the production process. 4. **Direct and Indirect Labor** illustrate the wages paid and labor intensity involved in production. 5. **Overhead Costs** highlight fixed and variable factory cost elements. 6. **Depreciation** shows the wear and tear or usage impact on the company's factory equipment. 7. **Overhead Application** ensures that manufacturing costs are
**How to Prepare Journal Entries for Transactions**

When recording financial transactions in an accounting system, it is essential to accurately prepare journal entries. Below is a template for preparing journal entries, complete with specific instructions and formatting guidelines to help you maintain accuracy and consistency.

### Instructions

1. **Account Titles**: Enter the titles of the accounts involved in the transaction. Debit account titles should be listed first.
2. **Debit and Credit Amounts**: Enter the amounts for the debit and credit entries. Remember, total debits must equal total credits for each transaction.

### Important Notes

- **Automatic Indentation for Credit Accounts**: Credit account titles are automatically indented when the amount is entered. Do not manually indent these entries.
- **Posting Order**: Post entries in the order they are presented in the problem.
- **No Entry**: If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.

### Journal Entry Template

| No. | Account Titles and Explanation                     | Debit | Credit |
|-----|---------------------------------------------------|-------|--------|
| 1.  |                                                   |       |        |
|     |                                                   |       |        |
|     |                                                   |       |        |
| 2.  |                                                   |       |        |
|     |                                                   |       |        |
|     |                                                   |       |        |
|     | (To record raw materials purchases)               |       |        |
| 3.  |                                                   |       |        |
|     |                                                   |       |        |
|     |                                                   |       |        |
|     | (To record use of direct and indirect materials in production) |   |   |

**Explanation of Template Rows:**

- **No.**: The sequence number of the transaction.
- **Account Titles and Explanation**: List the accounts affected and provide a brief explanation of the transaction.
- **Debit and Credit**: Enter the amounts to be debited and credited to each account.

### Example

Here is an example filled out to further illustrate how to use this template:

| No. | Account Titles and Explanation                     | Debit | Credit |
|-----|---------------------------------------------------|-------|--------|
| 1.  | Raw Materials Inventory                           | 5,000 |        |
|     | Accounts Payable                                  |       | 5,000  |
|     | (To record raw materials purchases)               |       |
Transcribed Image Text:**How to Prepare Journal Entries for Transactions** When recording financial transactions in an accounting system, it is essential to accurately prepare journal entries. Below is a template for preparing journal entries, complete with specific instructions and formatting guidelines to help you maintain accuracy and consistency. ### Instructions 1. **Account Titles**: Enter the titles of the accounts involved in the transaction. Debit account titles should be listed first. 2. **Debit and Credit Amounts**: Enter the amounts for the debit and credit entries. Remember, total debits must equal total credits for each transaction. ### Important Notes - **Automatic Indentation for Credit Accounts**: Credit account titles are automatically indented when the amount is entered. Do not manually indent these entries. - **Posting Order**: Post entries in the order they are presented in the problem. - **No Entry**: If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. ### Journal Entry Template | No. | Account Titles and Explanation | Debit | Credit | |-----|---------------------------------------------------|-------|--------| | 1. | | | | | | | | | | | | | | | 2. | | | | | | | | | | | | | | | | (To record raw materials purchases) | | | | 3. | | | | | | | | | | | | | | | | (To record use of direct and indirect materials in production) | | | **Explanation of Template Rows:** - **No.**: The sequence number of the transaction. - **Account Titles and Explanation**: List the accounts affected and provide a brief explanation of the transaction. - **Debit and Credit**: Enter the amounts to be debited and credited to each account. ### Example Here is an example filled out to further illustrate how to use this template: | No. | Account Titles and Explanation | Debit | Credit | |-----|---------------------------------------------------|-------|--------| | 1. | Raw Materials Inventory | 5,000 | | | | Accounts Payable | | 5,000 | | | (To record raw materials purchases) | |
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