Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
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Chapter 15, Problem 5PSA
To determine

Overhead:

Overheads are the cost and the expenses a company incurs of the production of a particular goods or services which are not directly related to the production. It does not include labor and direct material.

Direct Material Cost:

Direct material cost is the cost that a company incurs while manufacturing a certain product or service. It includes all the cost and expenses that are directly associated with the production such as raw materials.

Direct Labor Cost:

Direct labor cost is the cost that a company incurs in giving wages to the people that are directly associated with the production work.

Journal Entries:

Journal entries are the entries that are made in the books of accounts to record every transaction that happens in the business in the chronological order.

Accounting rules for journal entries:

  • To Increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
  • To Decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

To prepare: Job cost sheet and journal entries.

Expert Solution & Answer
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Explanation of Solution

Solution:

a.

To record material purchases on credit.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Purchase of raw materials 78,700
    Accounts payable 78,700
    (To record material purchases on credit)
    Table (1)
  • 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.

Working notes:

Receiving report #426
Given,
Units are 250.
Unit price is $250.

Computation of total price,

    Totalprice=Units×Unitprice=250×$250=$62,500

Total price of receiving report #426 is $62,500.

Receiving report #427
Given,
Units are 90.
Unit price is $180.

Computation of total price,

    Totalprice=Units×Unitprice=90×$180=$16,200

Total price of receiving report #427 is $16,200.

Computation of total price of both the jobs,

    Totalprice=Totalreceiving report #426+Totalreceiving report #427=$62,500+$16,200=$78,700

b.

Computation of job cost sheet of W company,

    Job cost sheet
    Customers name W Company Job number 102
    Direct materials Direct labor Overhead cost applied
    Date Requisition number Amount

    ($)

    Time ticket number Amount

    ($)

    Date Rate Amount

    ($)

    #35 33,750 #1-10 90,000 80% 72,000
    #36 12,960
    Total 46,710 Total 90,000 Total 72,000
    Table (2)

Working notes:

Direct labor is $90,000.
Overhead rate is 80%.

Computation of applied overhead,

    Appliedoverhead=Directlabor×Overheadrate=$90,000×80%=$72,000

Hence, the applied overhead is $72,000.

Computation of job cost sheet of R Company,

    Job cost sheet
    Customers name W Company Job number 103
    Direct materials Direct labor Overhead cost applied
    Date Requisition number Amount Time ticket number Amount

    ($)

    Date Rate Amount

    ($)

    #37 17,500 #11-30 65,000 80% 52,000
    #38 6,840
    Total 24,340 Total 65,000 Total 52,000
    Table (3)

Working notes:
Direct labor is $65,000.
Overhead rate is 80%.

Computation of applied overhead,

    Appliedoverhead=Directlabor×Overheadrate=$65,000×80%=$52,000

Hence, the applied overhead is $52,000.

c.

Computation of material ledger card of M material,

Financial and Managerial Accounting (Looseleaf) (Custom Package), Chapter 15, Problem 5PSA , additional homework tip  1

              Table (4)

Computation of material ledger card of R,

Financial and Managerial Accounting (Looseleaf) (Custom Package), Chapter 15, Problem 5PSA , additional homework tip  2
              Table (5)

Computation of material ledger card of paint,

Financial and Managerial Accounting (Looseleaf) (Custom Package), Chapter 15, Problem 5PSA , additional homework tip  3
              Table (6)

d.

To record factory payroll paid in cash.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Factory payroll 174,250
    Cash 174,250
    (To record factory payroll paid)
    Table (7)
  • Factory payroll is an expense account. The account is debited as all the expenses and losses are debited according to the rules.
  • Cash is an asset account. The account decreases as the amount paid for factory payroll is paid in cash, hence the asset decreases and it is credited.

To record the expense for overhead for cash

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Factory Overhead account 102,000
    Cash 102,000
    (To record the overhead cost)
    Table (8)
  • 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.

e.

To record completion of jobs.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Finished goods inventory 208,710
    Work in process 208,710
    (To record completion of jobs)
    Table (9)
  • Finished goods inventory is an asset account. The account increases as the balance of work in process has been transferred to the finished goods account, hence the balance increases and it is debited.
  • Work in process is an asset account. The account decreases as the balance of the account has been transferred to the finished goods account, hence the asset decreases and the account is credited.

Working note:

Given,
Direct materials are $46,710.
Direct labor is 90,000.
Over head is $72,000.

Computation of the total cost transferred,

    Totalcosttransferred=Directmaterials+Directlabor+Overhead=$46,710+$90,000+$72,000=$208,710

Total cost transferred to finished goods is $208,710.

f.

To record sales on discount.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Accounts receivable 400,000
    Sales 400,000
    (To record sales)
    Table (10)
  • Accounts receivable is an asset account. The account increases as the sale has been made and the debtors increase, hence it is debited.
  • Sales are a revenue account. The account generates income and all the incomes and gains are credited as per the rules.

g.

To record cost of sales.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Cost of goods sold 208,710
    Finished goods inventory 2088,710
    (To record cost of sales)
    Table (11)
  • Cost of goods sold is an expense account. The account increases as the cost of sales has been ascertained and all expenses are debited.
  • Finished goods inventory is an asset account. The account decreases as the balance has been transferred to cost of goods sold account and hence it is credited.

h.

To record direct and indirect materials.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Goods in process 71,050
    Factory overhead 1,125
    Raw materials inventory 72,175
    (To record direct and indirect materials)
    Table (12)
  • Goods in process are an asset account. The account increases as the direct labor is directly associated with the goods, hence the asset increases and it is debited.
  • Factory overhead is an expense account. The account increases as the indirect labor is treated as an expense and all the expenses are debited.
  • Raw materials inventory is an asset account. The account decreases as the amount has been transferred to the goods in process and factory overhead account.

i.

To record the direct and indirect labor.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Goods in process 155,000
    Factory overhead 19,250
    Factory payroll 174,250
    (To record direct and indirect labor)
    Table (13)
  • Goods in process are an asset account. The account increases as the direct labor is directly associated with the goods, hence the asset increases and it is debited.
  • Factory overhead is an expense account. The account increases as the indirect labor is treated as an expense and all the expenses are debited.
  • Factory payroll is a liability account. The account increases as amount is to be paid to the labors, hence the liability increases and hence it is credited.

Working note:

Direct labor of job 102 is $90,000.
Direct labor of job 103 is $65,000.

Computation of work in process,

    Workinprocess=Direct labor of job 102+Direct labor of job 103=$90,000+$65,000=$155,000

Hence, the work in process is $155,000.

j.

To record the entry to apply overhead.

    Date Account Title and Explanation Post ref Debit ($) Credit ($)
    Goods in process 124,000
    Factory overhead 124,000
    (To record apply overhead)
    Table (14)
  • Goods in process account are an asset account. The account increases as the overhead is directly related to production, hence the asset increases and it is debited.
  • Factory overhead is an expense account. The account decreases as the expenses decreases and hence it is credited.

Working note:

Overhead applied in job 102 is $72,000.
Overhead applied in job 103 is $52,000.

Computation of total overhead applied,

    Totaloverhead=Overhead applied in job 102+Overhead applied in job 103=$72,000+$52,000=$124,000

Computation of balance in the factory overhead account,

    Factory overhead
    Date Particular Debit ($) Date Particular Credit ($)
    Miscellaneous overhead 102,000 Goods in process 124,000
    Indirect materials 1,125
    Indirect labor 19,250
    Balance c/f 1,625
    124,000 124,000
    Table (15)

Hence, the over applied overhead is $1,625.

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Chapter 15 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

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