Chapter 19, Problem 1BPSB

To determine

Job costing means calculation of material cost, labor and overhead expenses for a specific job. In this method cost can be traced to individual jobs and if any cost is incurred excess in a jon then it can be charged from that customer.

Over-applied overheads means when applied overheads are more than the actual manufacturing overheads incurred then it is known over-applied overheads.

Under-applied overheads means when applied overheads are less than the actual overheads incurred then it is known under-applied overheads.

The schedule of cost of goods manufactured is used to calculate the cost of goods produced i.e. consisting of direct material, labor cost, factory and direct overheads and after adjustment of WIP inventory.

Requirement -1

To Calculate:

In the question we have given the data related to Job 114, Job 115 and Job 116. We have to prepare the following:

1. Total manufacturing costs schedule and the costs assigned to each job for September month

Answer to Problem 1BPSB

Solution:

1. Total manufacturing costs and the costs assigned to each job:

Job 114 - $186,000

Job 115- $314,000

Job 116- $260,000

Explanation of Solution

Explanation:

1. Total manufacturing costs and the costs assigned to each job

		Job114($)	Job115($)	Job116($)	Sept. Total Manufacturing cost($)
From August month
Direct materials		14,000	18,000
Direct labor		18,000	16,000
Overhead applied( 50% of direct labor)		9,000	8,000
Opening work In process(a)		41,000	42,000		83,000
For September month
Direct materials		100,000	170,000	80,000	350,000
Direct labor		30,000	68,000	120,000	218,000
Overheads (50% of direct labor cost incurred)		15,000	34,000	60,000	109,000
	Total costs in September (b)	145,000	272,000	260,000	677,000
	Total costs (a+b)	$186,000	$314,000	$260,000	$760,000

To determine

Requirement -2

To determine:

In the given question, we have to pass the Journal entries given in points (a) to (j):

Answer to Problem 1BPSB

Solution:

Journal entries for September

Sr.no.	journal titles	Debit ($)	Credit($)
1.	Raw material stock	400,000	400,000
	Accounts payable
	(Being materials purchased)
2.	Factory Payroll	232,000
	Cash		232,000
	(being factory payroll recorded)
3.	Factory overhead	30,000
	Raw material inventory		30,000
	(being indirect material recorded)
4.	Factory overhead	14,000
	Factory payroll		14,000
	(being indirect labor recorded)
5.	Factory overhead	32,000
	cash		32,000
	(being rent and other utilities incurred recorded)
6.	Factory overhead	30,000
	Accumulated depreciation		30,000
	(being depreciation on equipment recorded)
7.	Work in Process Inventory	350,000
	Raw material inventory		350,000
	(being goods used in job recorded)
8.	Work in Process Inventory	218,000
	Factory payroll		218,000
	(being direct labor used in job recorded)
9.	Work in process inventory	109,000
	Factory overhead		109,000
	(being overhead applied to jobs)
10.	Finished goods	500,000
	Work in process inventory (186,000+314,000)		500,000
	(being finished goods recorded)
11.	Cost of goods sold	186,000
	Finished goods		186,000
	(being cost of goods sold recorded)
12.	Cash	380,000
	Sales		380,000
	(being sales recorded)
13.	Factory overhead	3000
	Cost of goods sold		3000
	(being over-applied overhead recorded)

Explanation of Solution

Explanation:

1) When raw material are purchased on credit then raw material account will be debited and accounts payable account will be credited as it is purchased on credit.

2) Factory payroll is recorded and it will be debited as direct material is used in the production.

3) When indirect material is used in the production then it will be added to the factory overhead and it will be debited and raw material inventory will be credited as the balance of raw material inventory will decrease.

4) When indirect labor is used in the production then factory overhead account will be debited and factory payroll account will be credited.

5) When rent and other utilities will be paid then factory overhead will increase and thus debited and cash will decrease therefore it will be credited.

6) When depreciation is recorded on equipment then factory overhead will increase and thus debited and accumulated depreciation will be credited.

7) When goods were used in the production then work in process account will be debited and raw material inventory account will be credited as its balance will decrease.

8) When direct labor is used in production then work in process will be debited and factory payroll will be credited

9) When overhead is used in the production then work in progress will be debited and factory overhead will be credited.

10) When finished goods were recorded in the books then finished goods account will be debited as balance of finished goods increases and work in process account will be credited as inventory transfers from work in process to finished goods.

11) In case of cost of goods sold is recorded then cost of goods sold account will be debited and finished goods account will be credited.

12) When sale is made then cash will increase thus it will be debited and sale account will be credited with the amount of sale made.

13) Since overhead is over-applied therefore adjustment entry should be passed i.e. factory overhead will be debited and cost of goods sold account will be credited.

.

Calculation of over-applied overhead -

Overhead 109,000

Less: overhead incurred
Indirect materials	$30,000
Indirect labor	14,000
Factory rent	20,000
Factory utilities	12,000
Factory equip. depreciation	30,000	106,000
Over-applied overhead		$ 3,000

To determine

Requirement-3:

To determine:

We have to prepare schedule for cost of goods manufactured or produced

Answer to Problem 1BPSB

Solution:

Cost of goods manufactured is $500,000(Schedule is below in the explanation)

Explanation of Solution

Explanation:

Schedule of cost of goods manufactured-

Perez mfg. company

Direct materials used	$350,000
Direct labor used	218,000
Factory overhead:
Indirect materials	$ 30,000
Indirect labor	14,000
Factory rent	20,000
Factory utilities	12,000
Depreciation of equipment	30,000
Total manufacturing costs	674,000
Add: goods in process August 31 (Jobs 114 & 115)	83,000
Total cost of goods in process	757,000
Less: goods in process, September 30 (Job 116)	(260,000)
Add over-applied overhead	3,000
Cost of goods manufactured	$500,000

To determine

Requirement -4

To Calculate:

We have to calculate Gross profit and inventories at the end of the month.

Answer to Problem 1BPSB

Solution:

1) Gross profit at the end of the month is $197,000

2) Inventories at the end of the month is $ 744,000

Explanation of Solution

Explanation:

Calculation of gross profit for the month ended September 30

Sales	$380,000
Less: Cost of goods sold ($186,000 - $3,000)	(183,000)
Gross profit	$197,000

Calculation of inventories on the September 30

Particulars	Amount ($)
Raw materials (a)	170,000
Goods in process (Job 116)	260,000
Finished goods (Job 115)	314,000
Total inventories	$744,000

a) Calculation of raw material

Opening raw materials inventory	$150,000
Purchases	400,000
Direct materials used	(350,000)
Indirect materials used	(30,000)
Closing raw materials inventory	$170,000

To determine

Requirement-5:

To determine

Adjustment related to under or over-applied overheads and impact of this adjustment to decision making regarding each Job

Answer to Problem 1BPSB

Solution:

since overhead is over-applied by $3000 indicates that individual jobs are above cost. Due to which profit of the job is understated.

Explanation of Solution

Explanation:

In the given case, overhead is over-applied by $3000 which means that the individual job are above cost. We can say that as overhead is over-applied which in return increase the total cost of individual job. Due to which profit of the job is understated.

Conclusion

Conclusion:

since overhead is over-applied by $3000 indicates that individual jobs are above cost. Due to which profit of the job is understated