Concept explainers
(1)
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.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To Record: The journal entries to record summarized operations.
(1)
Explanation of Solution
The journal entries of operations of Industry T are as follows:
Date | Account titles and Explanation | Debit ($) |
Credit ($) |
a | Materials | 29,800 | |
Accounts Payable | 29,800 | ||
(Record materials purchased) | |||
b | Work in process Table (2) | 25,930 | |
Factory overhead | 1,080 | ||
Materials | 27,010 | ||
(Record material requisitioned to jobs) | |||
Work in process Table (2) | 23,850 | ||
Factory overhead | 4,100 | ||
Wages payable | 27,950 | ||
(Record factory labor used in production) | |||
c | Factory overhead | 5,500 | |
Accounts payable | 5,500 | ||
(Record factory overhead cost incurred on account) | |||
d | Factory overhead | 1,980 | |
|
1,980 | ||
(Record depreciation on account) | |||
e | Work in process(228 hours × $54) | 12,312 | |
Factory overhead | 12,312 | ||
(Record overhead applied to jobs) | |||
f | Finished goods Table (3) | 34,804 | |
Work in process | 34,804 | ||
(Record completion of job) | |||
g | Accounts Receivable | 34,450 | |
Sales | 34,450 | ||
(Record sales on account) | |||
h | Cost of goods sold Table (4) | 22,294 | |
Finished goods | 22,294 | ||
(Record cost of goods sold) |
Table (1)
Working note:
The material requisitioned to jobs is calculated as follows:
Job | Direct materials |
Direct labor |
301 | 2,960 | 2,775 |
302 | 3,620 | 3,750 |
303 | 2,400 | 1,875 |
304 | 8,100 | 6,860 |
305 | 5,100 | 5,250 |
306 | 3,750 | 3,340 |
25,930 | 23,850 |
Table (2)
Compute the cost of jobs finished as follows:
Job | Direct materials |
Direct labor |
Factory overhead | Total |
301 | 2,960 | 2,775 | 1,350 | 7,085 |
302 | 3,620 | 3,750 | 1,944 | 9,314 |
303 | 2,400 | 1,875 | 1,620 | 5,895 |
305 | 5,100 | 5,250 | 2,160 | 12,510 |
34,804 |
Table (3)
Compute the cost of goods sold as follows:
Job | Amount ($) |
301 | 7,085 |
302 | 9,314 |
303 | 5,895 |
22,294 |
Table (4)
- 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).
- 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).
- 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).
- 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).
- e) Factory overhead cost is applied to jobs. The work in process account is debited (Increased) and factory overhead account is credited (Decreased).
- f) The jobs are completed in the process. Finished goods account is debited (Increased) and Work in process account is credited (Decreased).
- g) Goods sold on account. Accounts receivable is an asset and is debited (Increased) and Sales affects stockholders’ equity and is credited (Increased).
- h) The cost of goods sold is recorded. Cost of goods sold account is debited (Increased), and finished goods account is credited (Decreased).
(2)
To Prepare: The appropriate T-accounts for work in process and Finished goods account.
(2)
Explanation of Solution
T-account:
T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.
The components of the T-account are as follows:
a) The title of the account
b) The left or debit side
c) The right or credit side
The T-account is prepared as follows:
Work in Process | |||
(b) | $49,780 | (f) | $34,804 |
(e) | $12,312 | ||
Bal | $27,288 |
Table (5)
Finished goods | |||
(f) | $34,804 | (g) | $34,804 |
Bal | $12,510 |
Table (6)
In the work in process account, materials requisitioned for jobs is debited, application of factory overhead to jobs is debited and jobs that are completed are credited. Then, closing balance of work in process is determined.
In finished goods account, Jobs that are completed are debited and sale of goods is credited. Then, closing balance of finished goods is determined.
(3)
To Prepare: The schedule of unfinished jobs to support the balance in the work in process account.
(3)
Explanation of Solution
Work in process:
Work in process refers to the semi-finished goods, which cannot be sold, and earn revenue. These inventories are shown in the
The schedule of unfinished jobs is prepared as follows:
Job | Direct materials ($) |
Direct labor ($) |
Factory overhead ($) | Total ($) |
No. 304 | 8,100 | 6,860 | 3,888 | 18,848 |
No. 306 | 3,750 | 3,340 | 1,350 | 8,440 |
Balance of work in process, Jan 30 | 27,288 |
Table (7)
The unfinished jobs are Job 304 and Job 306. The direct material cost, direct labor
(4)
To Prepare: The schedule of completed jobs to support the balance in the work in process account.
(4)
Explanation of Solution
The schedule of completed jobs is prepared as follows:
Job | Direct materials ($) |
Direct labor ($) |
Factory overhead ($) | Total ($) |
No. 305 (Finished goods, January 30) | 5,100 | 5,250 | 2,160 | 12,510 |
Table (8)
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.
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Chapter 17 Solutions
CENGAGENOWV2 FOR WARREN'S FINANCIAL & M
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