The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $84,000 of manufacturing overhead for an estimated activity level of $40,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials $ 10,700 Work in process $ 4,600 Finished goods $ 8,700 During the year, the following transactions were completed: Raw materials purchased on account, $ 163,000. Raw materials used in production, $146,000 (materials costing $126,000 were charged directly to jobs; the remaining materials were indirect). Costs for employee services were incurred as follows: Direct labor $ 160,000 Indirect labor $ 260,400 Sales commissions $ 29,000 Administrative salaries $ 45,000 Rent for the year was $18,100 ($13,700 of this amount related to factory operations, and the remainder related to selling and administrative activities). Utility costs incurred in the factory, $10,000. Advertising costs incurred, $13,000. Depreciation recorded on equipment, $21,000. ($17,000 of this amount related to equipment used in factory operations; the remaining $4,000 related to equipment used in selling and administrative activities.) Record the manufacturing overhead cost applied to jobs. Goods that had cost $226,000 to manufacture according to their job cost sheets were completed. Sales for the year (all paid in cash) totaled $518,000. The total cost to manufacture these goods according to their job cost sheets was $220,000. Required: 1. Prepare journal entries to record the transactions for the year. 2. Prepare T-accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the beginning balances in your inventory accounts). 3A. Is Manufacturing Overhead underapplied or overapplied for the year? 3B. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.
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.
Gold Nest Company of Guandong, China, is a family-owned enterprise that makes birdcages for the South China market. The company sells its birdcages through an extensive network of street vendors who receive commissions on their sales.
The company uses a job-order costing system in which
| Raw materials | $ | 10,700 |
| Work in process | $ |
4,600 |
| Finished goods | $ | 8,700 |
During the year, the following transactions were completed:
- Raw materials purchased on account, $ 163,000.
- Raw materials used in production, $146,000 (materials costing $126,000 were charged directly to jobs; the remaining materials were indirect).
- Costs for employee services were incurred as follows:
| Direct labor | $ | 160,000 |
| Indirect labor | $ | 260,400 |
| Sales commissions | $ | 29,000 |
| Administrative salaries | $ |
45,000 |
- Rent for the year was $18,100 ($13,700 of this amount related to factory operations, and the remainder related to selling and administrative activities).
- Utility costs incurred in the factory, $10,000.
- Advertising costs incurred, $13,000.
Depreciation recorded on equipment, $21,000. ($17,000 of this amount related to equipment used in factory operations; the remaining $4,000 related to equipment used in selling and administrative activities.)- Record the manufacturing overhead cost applied to jobs.
- Goods that had cost $226,000 to manufacture according to their
job cost sheets were completed. - Sales for the year (all paid in cash) totaled $518,000. The total
cost to manufacture these goods according to their job cost sheets was $220,000.
Required:
1. Prepare journal entries to record the transactions for the year.
2. Prepare T-accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the beginning balances in your inventory accounts).
3A. Is Manufacturing Overhead underapplied or overapplied for the year?
3B. Prepare a
4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.
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