Chapter 2, Problem 2PA

Entries and schedules for unfinished jobs and completed jobs

Kurtz Fencing Inc. uses a job order cost system. The following data summarize the operations related to production for March, the first month of operations:

1. A. Materials purchased on account, $45,000.
2. B. Materials requisitioned and factory labor used:

1. C. Factory overhead costs incurred on account, $1,800.
2. D. Depreciation of machinery and equipment, $2,500.
3. E. The factory overhead rate is $30 per machine hour. Machine hours used:

1. F. Jobs completed: 301, 302, 303, and 305.
2. G. Jobs were shipped and customers were billed as follows: Job 301, $8,500; Job 302, $16,150; Job 303, $13,400.

Instructions

1. 1. Journalize the entries to record the summarized operations.
2. 2. Post the appropriate entries to T accounts for Work in Process and Finished Goods, using the identifying letters as transaction codes. Insert memo account balances as of the end of the month.
3. 3. Prepare a schedule of unfinished jobs to support the balance in the work in process account.
4. 4. Prepare a schedule of completed jobs on hand to support the balance in the finished goods account.

To determine

Prepare the journal entries to record summarized operations.

Explanation of Solution

Job order costing

Job order cost system provides a separate record of each particular quantity of product that passes through the factory. Each quantity that is manufactured in the business is known as job. Job order costing is used when the products produced are significantly different from each other.

The journal entries of operations of Company KF is as follows:

Date	Account titles and Explanation	Debit($)	Credit($)
a	Materials	45,000
	Accounts Payable		45,000
	(Record materials purchased)
b	Work in processTable (2)	15,000
	Factory overhead	1,200
	Materials		16,200
	(Record material requisitioned to jobs)
	Work in processTable (2)	26,595
	Factory overhead	5,000
	Wages payable		31,595
	(Record factory labor used in production)
c	Factory overhead	1,800
	Accounts payable		1,800
	(Record factory overhead cost incurred on account)
d	Factory overhead	2,500
	Accumulated depreciation – Machinery & Equipment		2,500
	(Record depreciation on account)
e	Work in process	9,000
	Factory overhead(300 hours × $30)		9,000
	(Record overhead applied to jobs)
f	Finished goodsTable (3)	38,755
	Work in process		38,755
	(Record completion of job)
g	Accounts Receivable	38,050
	Sales		38,050
	(Record sales on account)
h	Cost of goods sold Table (4)	26,200
	Finished goods		26,200
	(Record cost of goods sold)

Table (1)

Justification:

1. a) The material is purchased on account. In regard to this, the material account is debited (Increased) and Accounts Payable is a liability and it is credited (Increased).
2. b) The materials are requisitioned to jobs which includes direct and indirect cost. In regard to this, Work in process account is debited (Increased), Factory overhead account is debited (Increased), Material account is credited (Decreased), and Wages payable account is credited (Increased).
3. c) The factory overhead costs are incurred on account. In regard to this, Factory overhead account is debited (Increased), and Accounts payable account is a liability and is credited (Increased).
4. d) Depreciation on machinery is recorded. In regard to this, Factory overhead account is debited (Increased), and Accumulated depreciation – Machinery account is a contra asset and is credited (Increased).
5. e) Factory overhead cost is applied to jobs. The work in process account is debited (Increased) and factory overhead account is credited (Decreased).
6. f) The jobs are completed in the process. Finished goods account is debited (Increased) and Work in process account is credited (Decreased).
7. g) Goods sold on account. Accounts receivable is an asset and is debited (Increased) and Sales affects stockholders’ equity and is credited (Increased).
8. h) The cost of goods sold is recorded. Cost of goods sold account is debited (Increased), and finished goods account is credited (Decreased).

Working notes:

The material requisitioned to jobs is calculated as follows:

Job	Directmaterials	Directlabor
301	1,850	2,500
302	3,150	7,220
303	2,200	5,350
304	1,800	2,400
305	4,230	6,225
306	1,770	2,900
	15,000	26,595

Table (2)

Compute the cost of jobs finished as follows:

Job	Directmaterials	Directlabor	Factory overhead	Total
301	1,850	2,500	900	5,250
302	3,150	7,220	1,800	12,170
303	2,200	5,350	1,230	8,780
305	4,230	6,225	2,100	12,555
				38,755

Table (3)

Compute the cost of goods sold as follows:

Job	Amount ($)
301	5,250
302	12,170
303	8,780
	26,200

Table (4)

To determine

Prepare the appropriate T-accounts for work in process and finished goods account.

Explanation of Solution

The T-account is prepared as follows:

Figure (1)

Figure (2)

In the work in process account, materials requisitioned for jobs is debited, application of factory overhead to jobs is debited and jobs that are completed are credited. Then, closing balance of work in process is determined.

In finished goods account, Jobs that are completed are debited and sale of goods is credited. Then, closing balance of finished goods is determined.

To determine

Prepare the schedule of unfinished jobs to support the balance in the work in process account.

Explanation of Solution

The schedule of unfinished jobs is prepared as follows:

Job	Directmaterials ($)	Directlabor ($)	Factory overhead ($)	Total($)
No. 304	1,800	2,400	1,890	6,090
No. 306	1,770	2,900	1,080	5,750
Balance of work in process, Jan 30				11,840

Table (5)

The unfinished jobs are Job 304 and Job 306. The direct material cost, direct labor cost and factory overhead cost consists of jobs cost. The total of uncompleted jobs constitutes balance of work in process as on January 30.

To determine

Prepare a schedule of completed jobs to support the balance in the work in process account.

Explanation of Solution

The schedule of completed jobs is prepared as follows:

Job	Directmaterials($)	Directlabor($)	Factory overhead($)	Total($)
No. 305 (Finished goods, January 30)	4,230	6,225	2,100	12,555

Table (6)

The completed job is Job 305. The direct material cost, direct labor cost and factory overhead cost consists of jobs cost. The total of completed jobs constitutes balance of finished goods as on January 30.