Chapter 19, Problem 2BPSB

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

Requirement-1

To determine:

We have to prepare journal entries for the various costs assigned in the given question from (a) to (e)

Answer to Problem 2BPSB

Solution:

JOURNAL ENTRIES

.

Date	Journal titles	Debit($)	Credit($)
a.Dec. 31	work in Process Inventory	12,200
	Raw Materials Inventory(4600 +7600)		12,200
	(being direct material recorded)
b. Dec. 31	work in Process Inventory	13,000
	Factory Payroll(5000 +8000)		13,000
	(being direct labor recorded)
c. Dec. 31	Goods in Process Inventory	26,000
	Factory Overhead(200% of direct labor)		26,000
	(being overhead recorded)
d. Dec. 31	Factory Overhead	2,100
	Raw Materials Inventory		2,100
	(being indirect material allocated)
e. Dec. 31	Factory Overhead	3,000
	Factory Payroll		3,000
	(being indirect labor recorded)

Explanation of Solution

Explanation:

a. When goods are used in the production then work in progress account will be debited and raw material account will be credited as material were put to use.

b. When direct labor were employed in the process then work in progress account will be debited as its amount will get increased with the amount of direct labor and factory payroll account will be credited.

c. When overhead is applied in the process which is 200%of direct labor then work in progress account will be debited and overhead account will be credited.

d. When indirect material were recorded then it will be added to the overhead account and thus debited and raw material account will be credited.

e. When indirect labor were employed in the production then factory overhead account will be debited and factory payroll account will be credited.

To determine

Requirement-2

To determine:

We have to determine revised value of fixed overhead and also to determine whether it is under applied or over applies and prepare a journal entry for the same adjustment.

Answer to Problem 2BPSB

Solution:

Factory overhead under applied is $6100.

Cost of Goods Sold Factory overhead	6,100		6100
( being under-applied overhead recorded.)

Explanation of Solution

Explanation:

2. calculation of under-applied overhead

Balance from trial balance	$27,000	Debit
Applied to Jobs 603 and 604	(26,000)	Credit
Additional indirect materials	2,100	Debit
Additional indirect labor	3,000	Debit
Under applied overhead	$ 6,100	Debit

To determine

Requirement -3

To determine:

We have to prepare a revised trial balance after all above adjustments.

Answer to Problem 2BPSB

Solution:

CAVALLO MFG. COMPANY

Trial Balance for the year ended December 31, 2017

Particulars	Debit($)	Credit($)
Cash	$ 64,000
Accounts receivable	42,000
Raw materials inventory(a)	11,700
Goods in process inventory(b)	51,200
Finished goods inventory	9,000
Prepaid rent	3,000
Accounts payable		$ 10,500
Notes payable		13,500
Common stock		30,000
Retained earnings		87,000
Sales		180,000
Cost of goods sold(c)	111,100
Factory payroll		16,000
Factory overhead	0
Operating expenses	45,000	_______
Totals	$337,000	$337,000

Explanation of Solution

Explanation:

a) Raw materials inventory

Balance per trial balance	$26,000
Less: Amounts recorded for Jobs 603 and 604	(12,200)
Less: Indirect materials	(2,100)
Ending balance	$11,700

b) Goods in process inventory

	Job 603	Job 604	Total
Direct materials	$ 4,600	$ 7,600	$12,200
Direct labor	5,000	8,000	13,000
Overhead	10,000	16,000	26,000
Total cost	$19,600	$31,600	$51,200

c) cost of goods sold:

Balance per trial balance	$105,000
Add: under-applied overhead	6,100
Ending balance	$111,100

To determine

Requirement-4:

We have to prepare income statement and balance sheet after all adjustments.

Answer to Problem 2BPSB

Solution:

CAVALLO MFG. COMPANY

Income Statement

For Year Ended December 31, 2017

Sales	$ 180,000
Less: Cost of goods sold	(111,100)
Gross profit	68,900
Less: Operating expenses	(45,000)
Net income	$ 23,900

CAVALLO MFG.COMPANY

Balance Sheet as on December 31, 2017

Cash		$ 48,000
Accounts receivable		42,000
Inventories
Raw materials inventory	$11,700
Goods in process inventory	51,200
Finished goods inventory	9,000	71,900
Prepaid rent		3,000
Total assets		$164,900
Liabilities and equity
Accounts payable		$ 10,500
Notes payable		13,500
Total liabilities		24,000
Common stock		30,000
Retained earnings ($87,000 + $23,900)		110,900
Total stockholders' equity		140,900
Total liabilities and equity		$164,900

Explanation of Solution

Explanation:

Calculation of Raw materials inventory

Balance as per trial balance	$26,000
Less: Amounts recorded for Jobs 603 and 604	(12,200)
Less: Indirect materials	(2,100)
Value of raw material inventory	$11,700

Calculation of Goods in process inventory

	Job 603	Job 604	Total
Direct materials	$ 4,600	$ 7,600	$12,200
Direct labor	5,000	8,000	13,000
Overhead	10,000	16,000	26,000
Total goods in process inventory	$19,600	$31,600	$51,200

To determine

Requirement-5

To determine:

We have to determine impact of error of charging direct material $2,100 on Job 604 on income statement and balance sheet.

Answer to Problem 2BPSB

Solution:

The $2,100 error would cause the costs for Job 604 to be understated. Since Job 604 is in process at the end of the reporting period, work in process inventory and total assets would both be understated on the balance sheet.

Explanation of Solution

Explanation:

The $2,100 error would lead the costs for Job 604 to be understated. Since Job 604 is in process at the end of the reporting period, work in process inventory and total assets would both be understated on the balance sheet

Also, the over- or under-applied overhead would be changed by $2,100 means if overhead is under-applied by $6,100, then the amount would decrease by $2,100, resulting in $4,000 under-applied overhead.

So to correct the error cost of goods sold will decrease and net income increase by $2,100 resulting in $2,100 increase in retained earnings.