Chapter 2, Problem 3PSA

1.

To determine

To prepare: Job cost sheet for each job.

Explanation of Solution

Job cost sheet for job number 136.

Job Number:136
Particular	Amount ($)
Materials	48,000
Labor	12,000
Overhead	24,000
Total Cost	84,000
Table (1)

Hence, the total cost is $84,000.

Working note:

Given,
Overhead rate is 200%.

Formula to calculate the applied overhead,

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $12,000 for direct labor cost and 200% for overhead rate.

$$ $\begin{array}{c}\text{Applied}\text{overhead}=\$12,000\times 200\%\\ =\$24,000\end{array}$

Hence, applied overhead is $24,000.

Job cost sheet for job number 137

Job Number:137
Particular	Amount ($)
Materials	32,000
Labor	10,500
Overhead	21,000
Total Cost	63,500
Table (2)

Hence, the total cost is $63,500.

Working note:

Given,
Overhead rate is 200%.

Formula to calculate the applied overhead,

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $10,500 for direct labor cost and 200% for overhead rate.

$$ $\begin{array}{c}\text{Applied}\text{overhead}=\$10,500\times 200\%\\ =\$21,000\end{array}$

Hence, applied overhead is $21,000.

Job cost sheet for job number 138

Job Number:138
Particular	Amount ($)
Materials	19,200
Labor	37,500
Overhead	75,000
Total Cost	131,700
Table (3)

Hence, the total cost is $131,700.

Working Notes:

Given,
Overhead rate is 200%.

Formula to calculate the applied overhead,

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $37,500 for direct labor cost and 200% for overhead rate.

$$ $\begin{array}{c}\text{Applied}\text{overhead}=\$37,500\times 200\%\\ =\$75,000\end{array}$

Hence, applied overhead is $75,000.

Job cost sheet for job 139.

Job Number:139
Particular	Amount ($)
Materials	22,400
Labor	39,000
Overhead	78,000
Total Cost	139,400
Table (4)

Hence, the total cost is $139,400.

Working note:

Given,
Overhead rate is 200%.

Formula to calculate the applied overhead,

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $39,000 for direct labor cost and 200% for overhead rate.

$$ $\begin{array}{c}\text{Applied}\text{overhead}=\$39,000\times 200\%\\ =\$78,000\end{array}$

Hence, applied overhead is $78,000.

Job cost sheet for job 140.

Job Number:140
Particular	Amount ($)
Materials	6,400
Labor	3,000
Overhead	6,000
Total Cost	15,400
Table (5)

Hence, the total cost is $15,400.

Working note:

Given,
Overhead rate is 200%.

Formula to calculate the applied overhead,

$\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}$

Substitute $3,000 for direct labor cost and 200% for overhead rate.

$$ $\begin{array}{c}\text{Applied}\text{overhead}=\$3,000\times 200\%\\ =\$6,000\end{array}$

Hence, applied overhead is $6,000.

2.

To determine

To prepare: Journal entries.

Explanation of Solution

a.

To record material purchases on credit.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Purchase of raw materials		200,000
	Accounts payable			200,000
	(To record material purchases on credit
Table (6)

• Purchase of raw materials is an asset account. Raw material increases as the new raw materials has been brought to the business that increases the assets and all the assets are debited as their values increases.
• Account payable is a liability account. Account payable increases as the raw materials are purchased on credit, hence the liability increases and all the liabilities are credited as their values decreases.

b.

To record the entry to assign raw materials cost to work in process inventory.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process inventory		128,000
	Raw materials inventory			128,000
	(To record raw materials assign to job)
Table (7)

• Work in process inventory is an asset account. The account increases as the raw materials are used in work in process that increases the balance of the work in process inventory account, hence it is debited.
• Raw materials inventory is an asset account. The account decreases as the raw materials are used in the work in process.

Working Notes:

Given,
Raw material to job 136 is $48,000.
Raw material to job 137 is $32,000.
Raw material to job 138 is $19,200.
Raw material to job 139 is $22,400.
Raw material to job 140 is $6,400.

Computation of total direct materials,
$\begin{array}{c}\text{Total}\text{direct}\text{materials}=\left(\begin{array}{l}\text{Raw materials to job }136+\text{Raw materials to job }137\\ +\text{Raw materials to job }138+\text{Raw materials to job }139\\ +\text{Raw materials to job }140\end{array}\right)\\ =\$48,000+\$32,000+\$19,200+\$22,400+\$6,400\\ =\$128,000\end{array}$

Hence, the total direct materials are $128,000.

To record indirect material costing $19,500.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead account		19,500
	Inventory-raw material			19,500
	(To record the overhead cost)
Table (8)

• Factory overhead is an expense account. Factory overhead increases as there is an indirect expense and all the expenses are debited.
• Inventory raw materials are an asset account. Inventory decreases as the expense is not directly related to the production and all the assets are credited as their value decreases.

c.

To record the expense for computer program for cash

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead account		19,500
	Cash			19,500
	(To record the overhead cost)
Table (9)

• Factory overhead is an expense account. The account increases as the expense is paid and all the expenses and losses are debited.
• Cash is an asset account. Cash account decreases as the amount paid for the expense is paid in cash, hence asset decreases and it is credited.

d.

To Record the entry to assign direct labor to job.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work in Process inventory		102,000
	Factory Wage Payable			102,000
	(To record cost of direct labor to job)
Table (10)

• Work in process inventory is an asset account. The account increases as the direct labor has been used in work in process inventory that increases the asset, hence it is debited.
• Factory Wage payable is an expense account. The account decreases as the expenses of direct labor are transferred to work in process inventory, hence it is credited.

Working note:

Given,
Direct labor to job 136 is $12,000.
Direct labor to job 137 is $10,500.
Direct labor to job 138 is $37,500.
Direct labor to job 139 is $39,000.
Direct labor to job 140 is $3,000.

Computation of total direct labor,

$\begin{array}{c}\text{Total}\text{Direct}\text{labor}=\left(\begin{array}{l}\text{Direct labor to job }136+\text{Direct labor to job}137\\ +\text{Direct labor to job}138+\text{Direct labor to job}139\\ +\text{Direct labor to job}140\end{array}\right)\\ =\$12,000+\$10,500+\$37,500+\$39,000+\$3,000\\ =\$102,000\end{array}$

Total direct labor is $102,000.

To record indirect labor.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		24,000
	Factory Wages Payable			24,000
	(To record the overhead cost)
Table (11)

• Factory overhead is an expense account. Factory overhead increases as there is an indirect labor and all the expenses are debited.
• Factory Wages payable is an expense account. The account decreases as the balance of the indirect labor is transferred to factory overhead, hence it is credited.

e.

To Record overhead applied.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work In Process		177,000
	Overhead			177,000
	(To assign cost of overhead to job)
Table (12)

• Work in process is an asset account. The account increases as the overhead is assigned to job as this increase the work in process, hence it is debited.
• Overhead is an expense account. The Account decreases as the overhead is assigned and transferred to work in process, hence it is credited.

Working note:

Given,
Direct labor to job 136 is $12,000.
Direct labor to job 138 is $37,500.
Direct labor to job 139 is $39,000.
Overhead rate is 200%.

Computation of direct labor cost of following jobs,

$\begin{array}{c}\text{Direct}\text{Labor}\text{cost}=\left(\begin{array}{l}\text{Direct labor to job }136+\text{Direct labor to job }138\\ +\text{Direct labor to job }139\end{array}\right)\\ =\$12,000+\$37,500+\$39,000\\ =\$88,500\end{array}$

Labor cost is $88,500

Computation of applied overhead,

$\begin{array}{c}\text{Applied}\text{overhead}=\text{Direct}\text{labor}\text{cost}\times \text{Overhead}\text{rate}\\ =\$88,500\times 200\%\\ =\$177,000\end{array}$

Hence, applied overhead is $177,000.

f.

To record the entry to transfer the job 136, 138 and 139 to finished goods.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Finished Goods Inventory		178,100
	Work in process inventory			178,100
	(To transfer jobs into finished goods)
Table (13)

• Finished goods are an asset account. The account increases as the balance of the account increases as the jobs has been transferred to this account, hence it is debited.
• Work in process inventory is an asset account. The account decreases as the balance is transferred to finished account, hence it is credited.

Working note:

Given,
Raw material to job 136 is $48,000.
Raw material to job 138 is $19,200.
Raw material to job 139 is $22,400.
Direct labor to job 136 is $12,000.
Direct labor to job 138 is $37,500.
Direct labor to job 139 is $39,000.

Computation of the total amount transferred to finished goods.

$\begin{array}{c}\text{Total}\text{Amount}\text{Transferred}=\left(\begin{array}{l}\text{Raw materials to job }136+\text{Raw materials to job }138\\ +\text{Raw materials to job }139+\text{Direct labor to job }136\\ +\text{Direct labor to job }138+\text{Direct labor to job 139}\end{array}\right)\\ =\left(\begin{array}{l}\$48,000+\$19,200+\$22,400\\ +\$12,000+\$37,500+\$39,000\end{array}\right)\\ =\$178,100\end{array}$

Total amount transferred is $178,000.

g.

To record the entry for sale.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Accounts Receivable		525,000
	Sales			525,000
	(To record the entry for sale)
Table (14)

• Accounts receivable is an asset. The account increases as sales has been made, therefore the debtors increase and it is debited.
• Sales are a revenue account. As revenue increases it is credited.

h.

To Record other factory overhead.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Factory Overhead		149,500
	Accumulated Depreciation on Building			68,000
	Accumulated Depreciation on Equipment			36,500
	Prepaid Insurance			10,000
	Property Tax Payable			35,000
	(To record the other factory overhead)
Table (15)

• Factory overhead is an expense account. Factory overhead increases as there is another overhead recorded and all the expenses are debited.
• Accumulated depreciation on building is a contra asset account. The account has a credit balance and account increases, hence it is credited.
• Accumulated depreciation on equipment is a contra asset account. The account has a credit balance and account increases, hence it is credited.
• Prepaid insurance is a liability account for company. The account increases as the liability is created, hence it is credited.
• Property tax payable is a liability account for company. The account increases as the liability is created, hence it is credited.

i.

To Record overhead applied.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
	Work In Process		27,000
	Overhead			27,000
	(To assign cost of overhead to job)
Table (16)

• Work in process is an asset account. The account increases as the overhead is assigned to job as this increase the work in process, hence it is debited.
• Overhead is an expense account. The Account decreases as the overhead is assigned and transferred to work in process, hence it is credited.

Working note:

Given,
Direct labor to job 137 is $10,500.
Direct labor to job 140 is $3,000.
Overhead rate is 200 %

Computation of total labor of job 137 and job 140,

$\begin{array}{c}\text{Total}\text{Labor}=\text{Direct labor to job }137+\text{Direct labor to job }140\\ =\$10,500+\$3,000\\ =\$13,500\end{array}$

Total labor is $13,500.

Computation of applied overhead,

$\begin{array}{c}\text{Applied}\text{Overhead}=\text{Direct}\text{Labor}\text{Cost}\times \text{Overhead}\text{Rate}\\ =\$13,500\times 200\%\\ =\$27,000\end{array}$

Hence, applied overhead is $27,000.

3.

To determine

To prepare: T accounts.

Explanation of Solution

T account for raw material

Raw Materials
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Accounts payable	200,000		Work in process inventory	128,000
				Factory Overhead	19,500
				Balance c/f	52,500
		200,000			200,00
Table (17)

T account for work in process.

Work in Process
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Raw materials inventory	128,000		Finished goods inventory	178,100
	Factory wage payable	102,000		Balance c/f	255.900
	Factory overhead	177,000
	Factory overhead	27,000
		434,000			434,000
Table (18)

T account for finished goods inventory.

Finished goods inventory
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Work in process inventory	178,100		Cost of goods sold	215,700
	Balance c/f	37,600
		215,700			215,700
Table (19)

T account for factory overhead.

Factory overhead
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Raw materials inventory	19,500		Work in process inventory	177,000
	Cash	15,000		Work in process inventory	27,000
	Factory wages payable	24,000
	Accumulated Depreciation	104,500
	Prepaid insurance	10,000
	Property tax payable	35,000
	Balance c/f	4,000
		204,000			204,000
Table (20)

T account for cost of goods sold.

Cost of goods sold
Date	Particular	Debit ($)	Date	Particular	Credit ($)
	Finished goods inventory	215,700		Balance c/f	215,700
		215,700			215,700
Table (21)

4.

To determine

To compute: The total cost of each job.

Explanation of Solution

Work in process inventory.

Work in process inventory
Particulars	Amount
Job 137	63,500
Job 140	15,400
Total work in process	78,900
Table (22)

Finished goods

Finished goods
Particulars	Amount
Job 139	139,400
Total finished goods	139,400
Table (23)

Cost of goods sold

Cost of goods sold
Particulars	Amount
Job 136	84,000
Job 138	131,700
Total Cost of goods sold	215,700
Table (24)