Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077632991
Author: Wild
Publisher: MCG
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Chapter 19, Problem 1BPSB
To determine

Job costing means calculation of material cost, labor and overhead expenses for a specific job. In this method cost can be traced to individual jobs and if any cost is incurred excess in a jon then it can be charged from that customer.

Over-applied overheads means when applied overheads are more than the actual manufacturing overheads incurred then it is known over-applied overheads.

Under-applied overheads means when applied overheads are less than the actual overheads incurred then it is known under-applied overheads.

The schedule of cost of goods manufactured is used to calculate the cost of goods produced i.e. consisting of direct material, labor cost, factory and direct overheads and after adjustment of WIP inventory.

Requirement -1

To Calculate:

In the question we have given the data related to Job 114, Job 115 and Job 116. We have to prepare the following:

1. Total manufacturing costs schedule and the costs assigned to each job for September month

Expert Solution
Check Mark

Answer to Problem 1BPSB

Solution:

1. Total manufacturing costs and the costs assigned to each job:

Job 114 - $186,000

Job 115- $314,000

Job 116- $260,000

Explanation of Solution

Explanation:

1. Total manufacturing costs and the costs assigned to each job

  Job114($) Job115($) Job116($) Sept. Total Manufacturing cost($)
From August month        
Direct materials 14,000 18,000    
Direct labor 18,000 16,000    
Overhead applied( 50% of direct labor) 9,000 8,000    
Opening work
In process(a)
41,000 42,000   83,000
For September month        
Direct materials 100,000 170,000 80,000 350,000
Direct labor 30,000 68,000 120,000 218,000
Overheads (50% of direct labor cost incurred) 15,000 34,000 60,000 109,000
  Total costs in
September (b)
145,000 272,000 260,000 677,000
  Total costs (a+b) $186,000 $314,000 $260,000 $760,000
To determine

Requirement -2

To determine:

In the given question, we have to pass the Journal entries given in points (a) to (j):

Expert Solution
Check Mark

Answer to Problem 1BPSB

Solution:

Journal entries for September

Sr.no. journal titles Debit ($) Credit($)
1. Raw material stock 400,000 400,000
  Accounts payable    
  (Being materials purchased)    
       
2. Factory Payroll 232,000  
  Cash   232,000
  (being factory payroll recorded)    
       
3. Factory overhead 30,000  
  Raw material inventory   30,000
  (being indirect material recorded)    
       
4. Factory overhead 14,000  
  Factory payroll   14,000
  (being indirect labor recorded)    
       
5. Factory overhead 32,000  
  cash   32,000
  (being rent and other utilities incurred recorded)    
       
6. Factory overhead 30,000  
  Accumulated depreciation   30,000
  (being depreciation on equipment recorded)    
       
7. Work in Process Inventory 350,000  
  Raw material inventory   350,000
  (being goods used in job recorded)    
       
8. Work in Process Inventory 218,000  
  Factory payroll   218,000
  (being direct labor used in job recorded)    
       
9. Work in process inventory 109,000  
  Factory overhead   109,000
  (being overhead applied to jobs)    
       
10. Finished goods 500,000  
  Work in process inventory (186,000+314,000)   500,000
  (being finished goods recorded)    
       
11. Cost of goods sold 186,000  
  Finished goods   186,000
  (being cost of goods sold recorded)    
       
12. Cash 380,000  
  Sales   380,000
  (being sales recorded)    
       
13. Factory overhead 3000  
  Cost of goods sold   3000
  (being over-applied overhead recorded)    

Explanation of Solution

Explanation:

1) When raw material are purchased on credit then raw material account will be debited and accounts payable account will be credited as it is purchased on credit.

2) Factory payroll is recorded and it will be debited as direct material is used in the production.

3) When indirect material is used in the production then it will be added to the factory overhead and it will be debited and raw material inventory will be credited as the balance of raw material inventory will decrease.

4) When indirect labor is used in the production then factory overhead account will be debited and factory payroll account will be credited.

5) When rent and other utilities will be paid then factory overhead will increase and thus debited and cash will decrease therefore it will be credited.

6) When depreciation is recorded on equipment then factory overhead will increase and thus debited and accumulated depreciation will be credited.

7) When goods were used in the production then work in process account will be debited and raw material inventory account will be credited as its balance will decrease.

8) When direct labor is used in production then work in process will be debited and factory payroll will be credited

9) When overhead is used in the production then work in progress will be debited and factory overhead will be credited.

10) When finished goods were recorded in the books then finished goods account will be debited as balance of finished goods increases and work in process account will be credited as inventory transfers from work in process to finished goods.

11) In case of cost of goods sold is recorded then cost of goods sold account will be debited and finished goods account will be credited.

12) When sale is made then cash will increase thus it will be debited and sale account will be credited with the amount of sale made.

13) Since overhead is over-applied therefore adjustment entry should be passed i.e. factory overhead will be debited and cost of goods sold account will be credited.

.

Calculation of over-applied overhead -

Overhead 109,000

Less: overhead incurred    
Indirect materials $30,000  
Indirect labor 14,000  
Factory rent 20,000  
Factory utilities 12,000  
Factory equip. depreciation 30,000 106,000
Over-applied overhead   $ 3,000
To determine

Requirement-3:

To determine:

We have to prepare schedule for cost of goods manufactured or produced

Expert Solution
Check Mark

Answer to Problem 1BPSB

Solution:

Cost of goods manufactured is $500,000(Schedule is below in the explanation)

Explanation of Solution

Explanation:

Schedule of cost of goods manufactured-

Perez mfg. company

Direct materials used $350,000
Direct labor used 218,000
Factory overhead:  
Indirect materials $ 30,000
Indirect labor 14,000
Factory rent 20,000
Factory utilities 12,000
Depreciation of equipment 30,000
Total manufacturing costs 674,000
Add: goods in process August 31 (Jobs 114 & 115) 83,000
Total cost of goods in process 757,000
Less: goods in process, September 30 (Job 116) (260,000)
Add over-applied overhead 3,000
Cost of goods manufactured $500,000
To determine

Requirement -4

To Calculate:

We have to calculate Gross profit and inventories at the end of the month.

Expert Solution
Check Mark

Answer to Problem 1BPSB

Solution:

1) Gross profit at the end of the month is $197,000

2) Inventories at the end of the month is $ 744,000

Explanation of Solution

Explanation:

Calculation of gross profit for the month ended September 30

Sales  $380,000
Less: Cost of goods sold ($186,000 - $3,000) (183,000)
Gross profit  $197,000

Calculation of inventories on the September 30

Particulars Amount ($)
Raw materials (a)  170,000
Goods in process (Job 116) 260,000
Finished goods (Job 115) 314,000
Total inventories $744,000

a) Calculation of raw material

Opening raw materials inventory $150,000
Purchases 400,000
Direct materials used (350,000)
Indirect materials used (30,000)
Closing raw materials inventory $170,000
To determine

Requirement-5:

To determine

Adjustment related to under or over-applied overheads and impact of this adjustment to decision making regarding each Job

Expert Solution
Check Mark

Answer to Problem 1BPSB

Solution:

since overhead is over-applied by $3000 indicates that individual jobs are above cost. Due to which profit of the job is understated.

Explanation of Solution

Explanation:

In the given case, overhead is over-applied by $3000 which means that the individual job are above cost. We can say that as overhead is over-applied which in return increase the total cost of individual job. Due to which profit of the job is understated.

Conclusion

Conclusion:

since overhead is over-applied by $3000 indicates that individual jobs are above cost. Due to which profit of the job is understated

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Chapter 19 Solutions

Fundamental Accounting Principles -Hardcover

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