Chapter 19, Problem 1APSA

To determine

Job Order Costing:

Job order costing is a system of allocating cost of production to an individual product or group of products. Under job order costing, each individual product or batches of products are treated as separate unit due to its unique features customize by the customers.

Product Cost:

The cost incurred on the production of a particular job or product is called product cost. The cost in production of a product usually involves raw material used, direct labor used and manufacturing overhead applied.

To determine:

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

2. Prepare journal entries for the month of April recording the production events and transactions.

3. Preparing a schedule of cost of goods manufactured.

4. Computation of gross profit and show how to present the inventories on the April 30 balance sheet.

Answer to Problem 1APSA

Solution:

1.

	Job 306	Job 307	Job 308	Total
Production cost for April	$262,500	$445,000	$257,500	$965,000
Total cost assigned to each job	$321,500	$507,000	$257,500	$1,086,000

2. Journal entries to record the events and transactions

Events	Accounts name	Debit	Credit
a.	Raw Materials Inventory	$500,000
	Accounts Payable		$500,000
b.	Work in Process Inventory	$455,000
	Raw Materials Inventory		$455,000
c.1	Factory Payroll	$363,000
	Cash		$363,000
c.2	Work in Process Inventory	$340,000
	Factory Payroll		$340,000
d.	Factory Overhead	$23,000
	Factory Payroll		$23,000
e.	Work in Process Inventory	$170,000
	Factory Overhead		$170,000
f.1	Factory Overhead	$50,000
	Raw Materials Inventory		$50,000
f.2	Factory overhead	$32,000
	Cash		$32,000
f.3	Factory overhead	$19,000
	Cash		$19,000
f.4	Factory overhead	$51,000
	Accumulated Depreciation – Factory Equipment		$51,000
g.	Finished Goods Inventory	$828,500
	Work in Process Inventory		$828,500
h.	Cost of Goods Sold	$321,500
	Finished Goods Inventory		$321,500
i.	Cash	$635,000
	Sales		$635,000
j.	Cost of Goods Sold	$5,000
	Factory Overhead		$5,000

3. Preparation of schedule of cost of goods manufactured

MARCELINO CO. Schedule of Cost of Goods Manufactured
Direct materials used		$455,000
Direct labor cost		$340,000
Factory overhead:
Indirect materials	$50,000
Indirect labor	$23,000
Factory rent	$32,000
Factory utilities	$19,000
Depreciation expense on factory equipment	$51,000
Total factory overhead		$175,000
Total manufacturing costs		$970,000
Add: Beginning Work in Process Inventory, March 31		$121,000
Total cost of Work in Process Inventory		$1,091,000
Less: Ending Work in Process Inventory, April 30		$(257,500)
Less: Under-applied overhead		$(5,000)
Cost of Goods Manufactured		$828,500

4.

Computation of Gross Profit
Sales	$635,000
Less: Cost of Goods Sold	$326,500
Gross Profit	$308,500

Inventories on the balance sheet as on April 30

Inventories
Raw Materials Inventory	$75,000
Work in Process Inventory	$257,500
Finished Goods Inventory	$507,000
Total Inventories	$839,500

5.

Since the under-applied overhead is not material, the adjustment won’t impact the business decision making regarding individual jobs or batches of jobs. Hence it is closed to Cost of Goods Sold. The business decision regarding jobs or batches of jobs are made based on the information obtain from actual result. But if the over-underapplied overhead is material, it would affect the decision making and it would be allocated to Work in Process based on allocation used by the business.

Explanation of Solution

Explanation:

1.

Costs during April
	Job 306	Job 307	Job 308	Total
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
Production cost incurred in April	$262,500	$445,000	$257,500	$965,000
Balance on March 31
Direct Materials	$29,000	$35,000	-	$64,000
Direct Labor	$20,000	$18,000	-	$38,000
Applied Overhead	$10,000	$9,000	-	$19,000
Total Cost Balance on March 31	$59,000	$62,000	-	$121,000
Total cost assigned to each job	$321,500	$507,000	$257,500	$1,086,000

2.

Factory Overhead
d.	$23,000	e.	$170,000
f.1	$50,000
f.2	$32,000
f.3	$19,000
f.4	$51,000
Under-applied	$5,000

4.

Raw Materials Inventory
Big. bal.	$80,000	b.	$455,000
a.	$500,000	f.1	$50,000
Balance	$75,000

Work in Process Inventory
Big. bal.	$121,000	g.	$828,500
b.	$455,000
c.2	$340,000
e	$170,000
Balance	$257,500

Finished Goods Inventory
g.	$828,500	h.	$321,500
Balance	$500,700

Cost of Goods Sold
h.	$321,500
j.	$5,000
Balance	$215,700

Conclusion

Conclusion:

It is concluded that the cost sheet helps in keeping accurate track of all cost incurred in the production of each individual product.