Chapter 17, Problem 17.2APR

(1)

To determine

Job order costing

Job order cost system provides a separate record of each particular quantity of product that passes through the factory. Each quantity that is manufactured in the business is known as job. Job order costing is used when the products produced are significantly different from each other.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

To Record: The journal entries to record summarized operations.

Explanation of Solution

The journal entries of operations of Industry T are as follows:

Date	Account titles and Explanation	Debit ($)	Credit ($)
a	Materials	29,800
	Accounts Payable		29,800
	(Record materials purchased)
b	Work in process     Table (2)	25,930
	Factory overhead	1,080
	Materials		27,010
	(Record material requisitioned to jobs)
	Work in process     Table (2)	23,850
	Factory overhead	4,100
	Wages payable		27,950
	(Record factory labor used in production)
c	Factory overhead	5,500
	Accounts payable		5,500
	(Record factory overhead cost incurred on account)
d	Factory overhead	1,980
	Accumulated depreciation – Machinery & Equipment		1,980
	(Record depreciation on account)
e	Work in process(228 hours × $54)	12,312
	Factory overhead		12,312
	(Record overhead applied to jobs)
f	Finished goods      Table (3)	34,804
	Work in process		34,804
	(Record completion of job)
g	Accounts Receivable	34,450
	Sales		34,450
	(Record sales on account)
h	Cost of goods sold   Table (4)	22,294
	Finished goods		22,294
	(Record cost of goods sold)

Table (1)

Working note:

The material requisitioned to jobs is calculated as follows:

Job	Direct materials	Direct labor
301	2,960	2,775
302	3,620	3,750
303	2,400	1,875
304	8,100	6,860
305	5,100	5,250
306	3,750	3,340
	25,930	23,850

Table (2)

Compute the cost of jobs finished as follows:

Job	Direct materials	Direct labor	Factory overhead	Total
301	2,960	2,775	1,350	7,085
302	3,620	3,750	1,944	9,314
303	2,400	1,875	1,620	5,895
305	5,100	5,250	2,160	12,510
				34,804

Table (3)

Compute the cost of goods sold as follows:

Job	Amount ($)
301	7,085
302	9,314
303	5,895
	22,294

Table (4)

1. a) The material is purchased on account. In regard to this, the material account is debited (Increased) and Accounts Payable is a liability and it is credited (Increased).

1. b) The materials are requisitioned to jobs which includes direct and indirect cost. In regard to this, Work in process account is debited (Increased), Factory overhead account is debited (Increased), Material account is credited (Decreased), and Wages payable account is credited (Increased).

1. c) The factory overhead costs are incurred on account. In regard to this, Factory overhead account is debited (Increased), and Accounts payable account is a liability and is credited (Increased).

1. d) Depreciation on machinery is recorded. In regard to this, Factory overhead account is debited (Increased), and Accumulated depreciation – Machinery account is a contra asset and is credited (Increased).

1. e) Factory overhead cost is applied to jobs. The work in process account is debited (Increased) and factory overhead account is credited (Decreased).

1. f) The jobs are completed in the process. Finished goods account is debited (Increased) and Work in process account is credited (Decreased).

1. g) Goods sold on account. Accounts receivable is an asset and is debited (Increased) and Sales affects stockholders’ equity and is credited (Increased).

1. h) The cost of goods sold is recorded. Cost of goods sold account is debited (Increased), and finished goods account is credited (Decreased).

(2)

To determine

To Prepare: The appropriate T-accounts for work in process and Finished goods account.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a)      The title of the account

b)      The left or debit side

c)      The right or credit side

The T-account is prepared as follows:

Work in Process
(b)	$49,780	(f)	$34,804
(e)	$12,312
Bal	$27,288

Table (5)

Finished goods
(f)	$34,804	(g)	$34,804
Bal	$12,510

Table (6)

In the work in process account, materials requisitioned for jobs is debited, application of factory overhead to jobs is debited and jobs that are completed are credited. Then, closing balance of work in process is determined.

In finished goods account, Jobs that are completed are debited and sale of goods is credited. Then, closing balance of finished goods is determined.

(3)

To determine

To Prepare: The schedule of unfinished jobs to support the balance in the work in process account.

Explanation of Solution

Work in process:

Work in process refers to the semi-finished goods, which cannot be sold, and earn revenue. These inventories are shown in the profit and loss account, as well as in the balance sheet account.

The schedule of unfinished jobs is prepared as follows:

Job	Direct materials ($)	Direct labor ($)	Factory overhead ($)	Total ($)
No. 304	8,100	6,860	3,888	18,848
No. 306	3,750	3,340	1,350	8,440
Balance of work in process, Jan 30				27,288

Table (7)

The unfinished jobs are Job 304 and Job 306. The direct material cost, direct labor cost and factory overhead cost consists of jobs cost. The total of uncompleted jobs constitutes balance of work in process as on January 30.

(4)

To determine

To Prepare: The schedule of completed jobs to support the balance in the work in process account.

Explanation of Solution

The schedule of completed jobs is prepared as follows:

Job	Direct materials ($)	Direct labor ($)	Factory overhead ($)	Total ($)
No. 305 (Finished goods, January 30)	5,100	5,250	2,160	12,510

Table (8)

The completed job is Job 305. The direct material cost, direct labor cost and factory overhead cost consists of jobs cost. The total of completed jobs constitutes balance of finished goods as on January 30.