
Concept explainers
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
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.
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) | $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 31st
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 |
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.
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