Chapter 19, Problem 5AP

a.

To determine

Prepare the journal entry and enter the receiving report information on the materials ledger cards.

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.

Prepare the journal entry to record the purchase of raw materials on credit:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Raw materials inventory	78,700
	Accounts payable (1)		78,700
	(To record the purchase of raw materials on credit)

Table (1)

• Raw materials inventory is an asset account and it is increased. Therefore, debit raw materials inventory with $78,700.
• Accounts payable is a liability account and it is increased. Therefore, credit accounts payable with $78,700.

Working note (1):

Calculate the amount of accounts payable:

$\begin{array}{c}\text{Accounts payable}=\left[\begin{array}{c}\left(\text{Number of units for Material M}\times \text{Rate per unit for Material M}\right)+\\ \left(\text{Number of units for Material R}\times \text{Rate per unit for Material R}\right)\end{array}\right]\\ =\left[\left(250\text{units}\times \text{\$250 each}\right)+\left(90\text{ units}\times \text{\$180 each}\right)\right]\\ =\$62,500+\$16,200\\ =\$78,700\end{array}$

Prepare the master ledger card to enter the receiving report information:

Materials ledger card for Material M:

Table (2)

Materials ledger card for Material R:

Table (3)

b, c and g:

To determine

Prepare the job cost sheet and materials ledger card for the requisition of direct and indirect materials.

Explanation of Solution

Prepare the job cost sheet for Company M for the requisition of direct materials:

Table (4)

Prepare the master ledger card for requisition of indirect materials (Material R):

Table (5)

Prepare the job cost sheet for Company R for the requisition of direct materials:

Table (6)

Prepare the master ledger card for requisition of indirect materials (Material R):

Table (7)

Prepare the master ledger card for requisition of indirect materials (Paint):

Table (8)

d.

To determine

Prepare the journal entry to record the direct and indirect labor cost and the cash payments made.

Explanation of Solution

Direct labor cost: The costs that are related to the labor employed in manufacturing process are known as direct labor costs. The direct labor costs includes not only wages of employees, but also worker’s compensation, life and medical insurance, payroll taxes, training costs, and pension contributions.

Manufacturing overhead costs: The costs, which do not relate directly with the manufacturing of products, are referred to as manufacturing overhead costs or indirect costs. Manufacturing overhead cost per unit is the cost of manufacturing overhead incurred to produce one unit of product.

Prepare the journal entry to record the direct and indirect labor costs:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process inventory $\left(\$90,000+\$65,000\right)$	155,000
	Factory overhead	19,250
	Cash		174,250
	(To record the direct and indirect labor costs)

Table (9)

• Work in process inventory is an asset account and it is increased. Therefore, debit work in process inventory with $155,000.
• Factory overhead is an expense account and it is increased. Therefore, debit factory overhead with $19,250.
• Cash is an asset account and it is decreased. Therefore, credit cash account with $174,250.

Prepare the journal entry to record the other factory overheads:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Factory overhead	102,000
	Cash		102,000
	(To record the other factory overhead costs)

Table (10)

• Factory overhead is an expense account and it is increased. Therefore, debit factory overhead with $102,000.
• Cash is an asset account and it is decreased. Therefore, credit cash account with $102,000.

e.

To determine

Prepare the journal entry to record the completion of the job and its transfer to finished goods.

Explanation of Solution

Finished goods inventory are completely ready for sale after completing the production process.

Prepare the journal entry to record the completion of the job and its transfer to finished goods:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Finished goods inventory	208,710
	Work in process inventory		208,710
	(To record the direct and indirect labor costs)

Table (11)

• Finished goods inventory is an asset account and it is increased. Therefore, debit finished goods inventory with $208,710.
• Work in process inventory is an asset account and it is decreased. Therefore, credit work in process inventory with $208,710.

f.

To determine

Prepare the journal entries to record the sales of Job 102 and the cost of goods sold.

Explanation of Solution

Prepare the journal entries to record the sales of Job 102:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Accounts receivable	400,000
	Sales revenue		400,000
	(To record the sale of Job 102)

Table (12)

• Accounts receivable is an asset account and it is increased. Therefore, debit accounts receivable with $400,000.
• Sales revenue is a revenue account and it increases the stockholders’ equity. Therefore, credit sales revenue with $400,000.

Prepare the journal entry to record the cost of goods sold:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Cost of goods sold	208,710
	Finished goods inventory		208,710
	(To record the cost of goods sold)

Table (13)

• Cost of goods sold is an expense account and it is increased. Therefore, debit cost of goods sold with $208,710.
• Finished goods inventory is an asset account and it is decreased. Therefore, credit finished goods inventory with $208,710.

h.

To determine

Prepare the journal entry to record the direct and indirect material costs.

Explanation of Solution

Direct materials cost: Manufacturing products arise with raw materials that are altered into finished products. The cost of any material that is an important part of the finished product is categorized as a direct materials cost.

Prepare the journal entry to record the direct and indirect material costs:

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process inventory $\left(\$33,750+\$12,960+\$17,500+\$6,840\right)$	71,050
	Factory overhead	1,125
	Raw materials inventory		72,175
	(To record the direct and indirect material costs)

Table (14)

• Work in process inventory is an asset account and it is increased. Therefore, debit work in process inventory with $71,050.
• Factory overhead is an expense account and it is increased. Therefore, debit factory overhead with $1,125.
• Work in process inventory is an asset account and it is decreased. Therefore, credit work in process inventory account with $72,715.

i.

To determine

Prepare the journal entry to record the total overhead costs applied to jobs.

Explanation of Solution

Prepare the journal entry to record the total overhead costs applied to jobs.

Date	Accounts title and explanation	Debit ($)	Credit ($)
	Work in process inventory	124,000
	Factory overhead $\left(\$72,000+\$52,000\right)$		124,000

Table (15)

• Work in process inventory is an asset account and it is increased. Therefore, debit work in process inventory with $124,000.
• Factory overhead is an expense account and it is decreased. Therefore, credit factory overhead with $124,000.

j.

To determine

Compute the balance in the factory overhead account as of May.

Explanation of Solution

Overhead Cost: Overhead cost is the expense incurred in the operations of a business. This expense does not include the cost which is incurred on labor. Therefore; this cost is known as overhead cost.

Compute the balance in the factory overhead account as of May:

Particulars	Amount ($)
Actual factory overhead:
Miscellaneous overhead	$102,000
Indirect materials	$1,125
Indirect labor	$19,250
Total actual factory overhead	$122,375
Factory overhead applied	$124,000
Over applied overhead	($1,625)

Table (16)

Thus, the factory over head as of May is ($1,625).