Chapter 19, Problem 5E

To determine

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. It is recorded by debiting the work in process account for all the cost and crediting the raw material inventory account, wages payable account and manufacturing overhead.

To determine:

1. Journalize the following events a through e in July.

a. Direct materials used in production

b. Direct labor used in production

c. Overhead applied.

d. The sales of Job 120.

e. Cost of goods sold for Job 120.

2. Computation of July 31 balances of the Work in Process Inventory and the Finished Goods Inventory accounts.

Answer to Problem 5E

Solution:

1. Journal entry for the given events.

General Journal
	Account name	Debit	Credit
a)	Work in Process Inventory	$9,500
	Raw Materials Inventory		$9,500
b)	Work in Process Inventory	$9,000
	Wages Payable		$9,000
c)	Work in Process Inventory	$6,400
	Manufacturing Overhead		$6,400
d)	Accounts Receivable	$22,000
	Sales Revenue		$22,000
e)	Cost of Goods Sold	$16,000
	Finished Goods Inventory		$16,000

2. Work in Process and Finished Goods Inventory accounts on July 31^st

Work in Process Inventory
Beg. Inventory	$11,040
Direct Materials	$9,500
Direct Labor	$8,000
Overhead Applied	$6,400
Available for Manufacturing	$34,940
		Job 120	$16,000
		Job 121	$12,660
Ending Inventory (Job 122)	$6,280

Finished Goods Inventory
Beg. Inventory	0
Job 120	$16,000
Job 121	$12,660
Available for Sale	$28,660
		Job 120	$16,000
Ending inventory (Job 121)	$12,660

Explanation of Solution

Explanation:

To record the employment of raw material, direct labor, and manufacturing overhead, the work in process account is debited and the raw material inventory account, wages payable account and manufacturing overhead account is credited. The allocation of manufacturing overhead is based on direct labor cost; 120% of direct labor cost. When the Job is sold on account, the accounts receivable account is debited to show the increase in assets and the sale revenue account is credited to show the revenue from the sale. Then the cost of goods sold account is debited as it is an expense on the goods sold and the finished goods inventory account is credited as the finished goods go out because of the sales.

July Product Costs	Job 120	Job 121	Job 122	Total
Direct materials	$1,000	$6,000	$2,500	$9,500
Direct labor	$2,200	$3,700	$2,100	$8,000
Overhead applied	$1,760	$2,960	$1,680	$6,400
Total	$4,960	$12,660	$6,280	$23,900

$\begin{array}{l}\begin{array}{l}Job120\\ AppliedOverhead=\text{ 8}0\%ofdirectlaborcost\end{array}\hfill \\ =\text{ 0}.80X\$2,200\hfill \\ \begin{array}{l} =\$1,760\\ \begin{array}{l}\begin{array}{l}Job121\\ AppliedOverhead=\text{ 8}0\%ofdirectlaborcost\end{array}\hfill \\ =\text{ 0}.80X\$3,700\hfill \\ \begin{array}{l} =\$2,960\\ \begin{array}{l}\begin{array}{l}Job122\\ AppliedOverhead=\text{ 8}0\%ofdirectlaborcost\end{array}\hfill \\ =\text{ 0}.80X\$2,100\hfill \\ =\$1,680\hfill \end{array}\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

$\begin{array}{l}CostofGoodsSold=BeginningbalanceofW.I.P\left(Job120\right)+ProductCostAssignedduringJuly\hfill \\ =\$11,040+\$4,960\hfill \\ =\$16,000\hfill \end{array}$

Conclusion

Conclusion:

So it is concluded that the Job 120 was sold on account for $22,000 with cost of goods sold $16,000. The ending balance of Work in Process Inventory is $6,280 of Job 122 and the ending balance of Finished Goods Inventory is $12,660 of Job 121.