Chapter 19, Problem 1AP

1.

To determine

Ascertain the total of each production cost incurred for April and total cost assigned to each job.

Explanation of Solution

Job order costing:

Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Ascertain the total of each production cost incurred for April and total cost assigned to each job.

Particulars	306	307	308	April Total
From the month of March
Direct materials	29,000	35,000
Direct labor	20,000	18,000
Applied overhead	10,000	9,000
Beginning work in process	59,000	62,000		121,000
For the month of April
Direct materials	135,000	220,000	100,000	455,000
Direct labor	85,000	150,000	105,000	340,000
Applied overhead	42,500	75,000	52,500	170,000
Total costs added in April	262,500	445,000	257,500	965,000
Total costs	321,500	507,000	257,500	1,086,000

(Table 1)

Note:

Applied overhead for the month of March and April equals the 50% of the direct labor cost.

2.

To determine

Prepare journal entry to record the transactions for the month of April.

Explanation of Solution

Prepare journal entry to record the transactions for the month of April.

Date	Accounts title and explanation	Debit ($)	Credit ($)
a.	Raw Material inventory	500,000
	Accounts payable		500,000
	(To record the purchase of materials on account.)
b.	Work in process inventory	455,000
	Raw Materials inventory		455,000
	(To assign cost of direct materials used)
c.	Work in process inventory	340,000
	Cash		340,000
	(To record the direct labor)
d.	Factory overhead	23,000
	Cash		23,000
	(To record indirect labor.)
e.	Work in process inventory	170,000
	Factory Overhead		170,000
	(To apply overhead to jobs.)
f.	Factory overhead	50,000
	Raw materials inventory		50,000
	(To record indirect materials )
	Factory overhead	19,000
	Cash		19,000
	(To record the factory utilities)
	Factory overhead	51,000
	Accumulated Depreciation-Factory      Equipment		51,000
	(To record  other  factory overhead)
	Factory overhead	32,000
	Cash		32,000
	(To record the factory rent)
g.	Finished goods inventory ( job 306 &307)	828,500
	Work in process inventory		828,500
	(To record jobs completed ($321,500+$507,000)
h.	Cost of goods  sold (306)	321,500
	Finished goods inventory		321,500
	(To record the cost of sale job)
i.	Cash	635,000
	Sales		635,000
	(To record the sale of job)
j.	Cost of goods sold	5,000
	Factory overhead (1)		5,000
	(To assign underapplied overhead)

(Table 2)

Working Note:

Calculate the amount factory overhead:

Particulars	Amount in     $	Amount in $
Overhead applied to  jobs		170,000
Overhead incurred:
Indirect materials	50,000
Indirect labor	23,000
Factory rent	32,000
Factory utilities	19,000
Factory Equipment Depreciation	51,000	175,000
Underapplied overhead		5,000

(Table 3)

…… (1)

3.

To determine

Prepare a schedule of cost of goods manufactured.

Explanation of Solution

Company M
Schedule of costs of goods manufactured
For month  ended April 30
Particulars	Amount in $
Direct materials used	455,000
Direct labor used	340,000
Factory overhead applied	170,000
Total manufacturing costs	965,000
Add work in process March 31 (Jobs 306 & 307)	121,000
Total cost of work in process	1,086,000
Deduct work in process, April 30 (Job 308)	(257,500)
Cost of goods manufactured	828,500

(Table 4)

4.

To determine

Compute gross profit for April and also show the manner by which the inventories on April 30 balance sheet are presented.

Explanation of Solution

Compute gross profit for April.

Particulars	Amount in $
Sales	635,000
Cost of goods sold $\left(\$321,500+\$5,000\right)$	(326,500)
Gross profit	308,500

(Table 5)

Show the manner by which the inventories on April 30 balance sheet is presented.

Particulars	Amount in $
Inventories
Raw materials (2)	75,000
Work in process (Job 308)	257,500
Finished goods (Job 307)	507,000
Total  Inventories	839,500

(Table 6)

Working notes:

Calculate the amount of raw materials:

Particulars	Amount in $
Beginning  raw materials  inventory	80,000
Purchase	500,000
Direct materials used	(455,000)
Indirect raw materials used	(50,000)
Ending  raw materials inventory	75,000

(Table 6)

…… (2)

5.

To determine

Discuss the manner by which the adjustment the over- or underapplied overhead is closed to Cost of Goods Sold will have an impact on business decision making regarding to individual jobs or batches of job.

Explanation of Solution

The overhead for the business is being overstated by $5,000. This will have an impact on the profits earned by the company at job level  by overstating  the job.