Chapter 15, Problem 3PSB

1.

To determine

To prepare:

Job cost sheet for each job.

Explanation of Solution

Job cost sheet for job number 487.

Job Number:487
Particular	Amount ($)
Materials	30,000
Labor	8,000
Overhead	16,000
Total Cost	54,000

Table (1)

Hence, the total cost is $54,000.

Working Note:

Given,

Overhead rate is 200%.

Formula to calculate the applied overhead:

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $8,000 for direct labor cost and 200% for overhead rate,

$\begin{array}{c}\text{Applied}\text{overhead}=\$8,000\times 200\%\\ =\$16,000\end{array}$

Hence, applied overhead is $16,000.

Job cost sheet for job number 137

Job Number:488
Particular	Amount ($)
Materials	20,000
Labor	7,000
Overhead	14,000
Total Cost	41,000

Table (2)

Hence, the total cost is $41,000.

Working Note:

Given,

Overhead rate is 200%.

Formula to calculate the applied overhead:

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $7,000 for direct labor cost and 200% for overhead rate,

$\begin{array}{c}\text{Applied}\text{overhead}=\$7,000\times 200\%\\ =\$14,000\end{array}$

Hence, applied overhead is $14,000.

Job cost sheet for job number 489

Job Number:489
Particular	Amount ($)
Materials	12,000
Labor	25,000
Overhead	50,000
Total Cost	87,000

Table (3)

Hence, the total cost is $87,000.

Working Note:

Given,

Overhead rate is 200%.

Formula to calculate the applied overhead:

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $25,000 for direct labor cost and 200% for overhead rate,

$\begin{array}{c}\text{Applied}\text{overhead}=\$25,000\times 200\%\\ =\$50,000\end{array}$

Hence, applied overhead is $75,000.

Job cost sheet for job 490

Job Number:490
Particular	Amount ($)
Materials	14,000
Labor	26,000
Overhead	52,000
Total Cost	92,000

Table (4)

Hence, the total cost is $92,000.

Working Note:

Given,

Overhead rate is 200%.

Formula to calculate the applied overhead:

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $26,000 for direct labor cost and 200% for overhead rate,

$\begin{array}{c}\text{Applied}\text{overhead}=\$26,000\times 200\%\\ =\$52,000\end{array}$

Hence, applied overhead is $52,000.

Job cost sheet for job 491

Job Number:491
Particular	Amount ($)
Materials	4,000
Labor	2,000
Overhead	4,000
Total Cost	10,000

Table (5)

Hence, the total cost is $10,000.

Working Notes:

Given,

Overhead rate is 200%.

Formula to calculate the applied overhead,

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $2,000 for direct labor cost and 200% for overhead rate.

$\begin{array}{c}\text{Applied}\text{overhead}=\$2,000\times 200\%\\ =\$4,000\end{array}$

Hence, applied overhead is $4,000.

2.

To determine

To prepare:

The journal entries.

Explanation of Solution

a.

Journal entry to record material purchases on credit.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Purchase of Raw Materials		125,000
	Accounts Payable			125,000
	(To record material purchases on credit

Table (6)

• Purchase of raw materials is an asset account. Raw material increases as the new raw materials has been brought to the business that increases the assets and all the assets are debited as their values increases.

• Account payable is a liability account. Account payable increases as the raw materials are purchased on credit, hence the liability increases and all the liabilities are credited as their values decreases.

b

Journal entry to record the assign raw materials cost to work in process inventory.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process Inventory		80,000
	Raw Materials Inventory			80,000
	(To record raw materials assign to job)

Table (7)

• Work in process inventory is an asset account. The account increases as the raw materials are used in work in process that increases the balance of the work in process inventory account, hence it is debited.

• Raw materials inventory is an asset account. The account decreases as the raw materials are used in the work in process.

Working Note:

Given,

Raw material to job 487 is $30,000.

Raw material to job 488 is $20,000.

Raw material to job 489 is $12,000.

Raw material to job 490 is $14,000.

Raw material to job 491 is $4,000.

Computation of total direct materials:

$\begin{array}{c}\text{Total}\text{direct}\text{materials}=\left(\begin{array}{l}\text{Raw materials to job }487+\text{Raw materials to job }488\\ +\text{Raw materials to job 489}+\text{Raw materials to job 490}\\ +\text{Raw materials to job 491}\end{array}\right)\\ =\$30,000+\$20,000+\$12,000+\$14,000+\$4,000\\ =\$80,000\end{array}$

Hence, the total direct materials are $80,000.

Journal entry to record indirect material costing $19,500

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		12,000
	Inventory-Raw Material			12,000
	(To record the overhead cost)

Table (8)

• Factory overhead is an expense account. Factory overhead increases as there is an indirect expense and all the expenses are debited.

• Inventory raw materials are an asset account. Inventory decreases as the expense is not directly related to the production and all the assets are credited as their value decreases.

c.

Journal entry to record the expense for computer program for cash

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		11,000
	Cash			11,000
	(To record the overhead cost)

Table (9)

• Factory overhead is an expense account. The account increases as the expense is paid and all the expenses and losses are debited.

• Cash is an asset account. Cash account decreases as the amount paid for the expense is paid in cash, hence asset decreases and it is credited.

d.

Journal entry to record to assign direct labor to job

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process Inventory		68,000
	Cash			68,000
	(To record cost of direct labor to job)

Table (10)

• Work in process inventory is an asset account. The account increases as the direct labor has been used in work in process inventory that increases the asset, hence it is debited.

• Cash is an asset account. Cash account decreases as the amount paid for the expense is paid in cash, hence asset decreases and it is credited.

Journal entry to record the expense for computer program for cash

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		16,000
	Cash			16,000
	(To record the overhead cost)

Table (11)

• Factory overhead is an expense account. The account increases as the expense is paid and all the expenses and losses are debited.

• Cash is an asset account. Cash account decreases as the amount paid for the expense is paid in cash, hence asset decreases and it is credited.

Working Note:

Given,

Direct labor to job 136 is $12,000.

Direct labor to job 137 is $10,500.

Direct labor to job 138 is $37,500.

Direct labor to job 139 is $39,000.

Direct labor to job 140 is $3,000.

Computation of total direct labor:

$\begin{array}{c}\text{Total}\text{Direct}\text{labor}=\left(\begin{array}{l}\text{Direct labor to job }136\\ +\text{Direct labor to job}137\\ +\text{Direct labor to job}138\\ +\text{Direct labor to job}139\\ +\text{Direct labor to job}140\end{array}\right)\\ =\$12,000+\$10,500+\$37,500+\$39,000+\$3,000\\ =\$102,000\end{array}$

Total direct labor is $102,000.

Journal entry to record indirect labor

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		24,000
	Factory Wages Payable			24,000
	(To record the overhead cost)

Table (12)

• Factory overhead is an expense account. Factory overhead increases as there is an indirect labor and all the expenses are debited.

• Factory Wages payable is an expense account. The account decreases as the balance of the indirect labor is transferred to factory overhead, hence it is credited.

e.

Journal entry to record overhead applied.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process		118,000
	Overhead			118,000
	(To assign cost of overhead to job)

Table (13)

• Work in process is an asset account. The account increases as the overhead is assigned to job as this increase the work in process, hence it is debited.

• Overhead is an expense account. The Account decreases as the overhead is assigned and transferred to work in process, hence it is credited.

Working Note:

Given,

Direct labor to job 487 is $8,000.

Direct labor to job 488 is $25,000.

Direct labor to job 489 is $26,000.

Overhead rate is 200%.

Computation of direct labor cost of following jobs:

$\begin{array}{c}\text{Direct}\text{labor}\text{cost}=\left(\begin{array}{l}\text{Direct labor to job }487+\text{Direct labor to job }488\\ +\text{Direct labor to job }489\end{array}\right)\\ =\$8,000+\$25,000+\$26,000\\ =\$59,000\end{array}$

Labor cost is $59,000

Computation of applied overhead:

$\begin{array}{c}\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}\\ =\$59,000\times 200\%\\ =\$118,000\end{array}$

Hence, applied overhead is $118,000.

f.

Journal entry to record the transfer of the job 136, 138 and 139 to finished goods.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Finished Goods Inventory		178,100
	Work in Process Inventory			178,100
	(To transfer jobs into finished goods)

Table (14)

• Finished goods are an asset account. The account increases as the balance of the account increases as the jobs has been transferred to this account, hence it is debited.

• Work in process inventory is an asset account. The account decreases as the balance is transferred to finished account, hence it is credited.

Working Notes:

Given,

Raw material to job 487 is $30,000.

Raw material to job 489 is $12,000.

Raw material to job 490 is $14,000.

Direct labor to job 487 is $8,000.

Direct labor to job 489 is $25,000.

Direct labor to job 490 is $26,000.

Computation of the total amount transferred to finished goods:

$\begin{array}{c}\text{Total}\text{amount}\text{transferred}=\left(\begin{array}{l}\text{Raw materials to job }487+\text{Raw materials to job 489}\\ +\text{Raw materials to job 490}+\text{Direct labor to job 487}\\ +\text{Direct labor to job 489}+\text{Direct labor to job 490}\\ +\text{Overheads}\text{applied}\end{array}\right)\\ =\left(\begin{array}{l}\$30,000+\$12,000+\$14,000+\$8,000\\ +\$25,000+\$26,000+\$118,000\end{array}\right)\\ =\$233,000\end{array}$

Total amount transferred is $233,000.

g.

Journal entry to record the entry for sale

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Accounts Receivable		340,000
	Sales			340,000
	(To record the entry for sale)

Table (15)

• Accounts receivable is an asset. The account increases as sales has been made, therefore the debtors increase and it is debited.

• Sales are a revenue account. As revenue increases it is credited.

Journal entry to record the entry for cost of goods sold

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Cost of Goods Sold		141,000
	Finished Goods Inventory			141,000
	(To record the entry for sale)

Table (16)

• Cost of goods sold is an expense for the company which increases the balance of expenses and loss account. Therefore, the cost of goods sold would be debited.

• Inventory is an asset account and it’s transferred into sales reduces the asset account. Therefore, finished goods account would be credited.

Working Note:

Given,

Raw material to job 487 is $30,000.

Raw material to job 489 is $12,000.

Direct labor to job 487 is $8,000.

Direct labor to job 489 is $25,000.

Overhead rate is 200%.

Computation of direct labor cost of following jobs,

$\begin{array}{c}\text{Direct}\text{labor}\text{cost}=\left(\begin{array}{l}\text{Direct labor to job }487\\ +\text{Direct labor to job }489\end{array}\right)\\ =\$8,000+\$25,000\\ =\$33,000\end{array}$

Labor cost is $33,000.

Computation of applied overhead,

$\begin{array}{c}\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}\\ =\$33,000\times 200\%\\ =\$66,000\end{array}$

Hence, applied overhead is $66,000.

Computation of the cost of goods sold,

$\begin{array}{c}\text{Cost of goods sold}=\left(\begin{array}{l}\text{Raw materials to job }487+\text{Raw materials to job 489}\\ +\text{Direct labor to job 487}\\ +\text{Direct labor to job 489}+\text{Overheads}\text{applied}\end{array}\right)\\ =\$30,000+\$12,000+\$8,000+\$25,000+\$66,000\\ =\$141,000\end{array}$

Total amount transferred is $141,000

h.

Journal entry to record other factory overhead

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		96,000
	Accumulated Depreciation on Building			37,000
	Accumulated Depreciation on Equipment			21,000
	Prepaid Insurance			7,000
	Property Tax Payable			31,000
	(To record the other factory overhead)

Table (17)

• Factory overhead is an expense account. Factory overhead increases as there is another overhead recorded and all the expenses are debited.

• Accumulated depreciation on building is a contra asset account. The account has a credit balance and account increases, hence it is credited.

• Accumulated depreciation on equipment is a contra asset account. The account has a credit balance and account increases, hence it is credited.

• Prepaid insurance is a liability account for company. The account increases as the liability is created, hence it is credited.

• Property tax payable is a liability account for company. The account increases as the liability is created, hence it is credited.

i.

Journal entry to record overhead applied.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process		18,000
	Overhead			18,000
	(To assign cost of overhead to job)

Table (18)

• Work in process is an asset account. The account increases as the overhead is assigned to job as this increase the work in process, hence it is debited.

• Overhead is an expense account. The Account decreases as the overhead is assigned and transferred to work in process, hence it is credited.

Working Note:

Given,

Direct labor to job 488 is $7,000.

Direct labor to job 491 is $2,000.

Overhead rate is 200%.

Computation of total labor of job 488 and job 491:

$\begin{array}{c}\text{Total}\text{Labor}=\text{Direct labor to job }137+\text{Direct labor to job }140\\ =\$7,000+\$2,000\\ =\$9,000\end{array}$

Total labor is $9,000.

Computation of applied overhead,

$\begin{array}{c}\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}\\ =\$9,000\times 200\%\\ =\$18,000\end{array}$

Hence, applied overhead is $18,000.

3.

To determine

To prepare:

T accounts.

Explanation of Solution

T account for raw material

Raw Materials
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Accounts payable	125,000		Work in process inventory	80,000
				Factory overhead	12,000
				Balance c/f	33,000
		125,000			125,000

Table (19)

T account for work in process.

Work in Process
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Raw materials inventory	80,000		Finished goods inventory	233,000
	Factory wage payable	68,000		Balance c/f	51,000
	Factory overhead	118,000
	Factory overhead	18,000
		284,000			284,000

Table (20)

T account for finished goods inventory.

Finished Goods Inventory
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Work in process inventory	233,000		Cost of goods sold	141,000
				Balance c/f	92,000
		233,000			233,000

Table (21)

T account for factory overhead.

Factory Overhead
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Raw materials inventory	12,000		Work in process inventory	118,000
	Cash	11,000		Work in process inventory	18,000
	Factory wages payable	16,000
	Accumulated Depreciation	58,000
	Prepaid insurance	7,000
	Property tax payable	31,000
	Balance c/f	1,000
		136,000			136,000

Table (22)

T account for cost of goods sold.

Cost of Goods Sold
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Finished goods inventory	141,000		Balance c/f	141,000
		141,000			141,000

Table (23)

4.

To determine

To compute:

The total cost of each job.

Explanation of Solution

Work in process inventory.

Work in process inventory
Particulars	Amount
Job 488	41,000
Job 491	10,000
Total work in process	51,000

Table (24)

Finished goods

Finished goods
Particulars	Amount
Job 490	92,000
Total finished goods	139,400

Table (25)

Cost of goods sold

Cost of goods sold
Particulars	Amount
Job 487	54,000
Job 489	87,000
Total Cost of goods sold	141,000

Table (26)