KRAFT ‘R’ US does customized, hand-crafted memorabilia, in which each batch of items is a job. The company has a highly labour intensive production process, so it allocates manufacturing overhead based on direct labour hours. Starz pre-determined overhead application rate for 20X8 was computed from the following data: Total estimated factory overheads 2400000 Total estimated direct labour hours 40000 At the end of May 20X8, KRAFT ‘R’ US reported the following inventories: Materials Inventory dr 208000 WIP Inventory DR 176000 Finished Goods Inventory DR 95000 During June 20X8, KRAFT ‘R’ US actually used 3,000 direct labour hours and recorded the following transactions. (i) Purchased materials on account $310,000 (ii) Manufacturing wages incurred $400,000 (iii) Materials requisitioned (includes $30,000 of indirect materials) $420,000 (iv) Assigned manufacturing wages, 85% direct labour, 15% indirect labour (v) Depreciation expense on factory equipment used on the different jobs $95,000 (v) Other manufacturing overhead incurred $35,000 (vi) Allocated manufacturing overhead for June 20X8 (vii) Cost of jobs completed $995,000 (viii) Cost of jobs sold (on account) at a margin of 33⅓% on sales $960,000 Required: (a) Compute KRAFT ‘R’ US’ predetermined manufacturing overhead rate for 20X8. (b) State the journal entries necessary to record the above transactions in the general journal. Assume that KRAFT ‘R’ US uses the perpetual inventory system. (c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account and state the balance on the account before performing end of period closing entries. Show the journal entries necessary to dispose of the variance. (d)What is the balance in the Cost of Goods Sold account after the adjustment? (e) Compute KRAFT ‘R’ US’gross profit earned on the jobs completed. (f) Open T-accounts for Materials Inventory, Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts & determine the ending account balances.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
KRAFT ‘R’ US does customized, hand-crafted memorabilia, in which each batch of items is a job. The
company has a highly labour intensive production process, so it allocates manufacturing overhead based on
direct labour hours.
Starz pre-determined overhead application rate for 20X8 was computed from the following data:
Total estimated factory
Total estimated direct labour hours 40000
At the end of May 20X8, KRAFT ‘R’ US reported the following inventories:
Materials Inventory dr 208000
WIP Inventory DR 176000 Finished Goods Inventory DR 95000
During June 20X8, KRAFT ‘R’ US actually used 3,000 direct labour hours and recorded the following
transactions.
(i) Purchased materials on account $310,000
(ii) Manufacturing wages incurred $400,000
(iii) Materials requisitioned (includes $30,000 of indirect materials) $420,000
(iv) Assigned manufacturing wages, 85% direct labour, 15% indirect labour
(v)
(v) Other manufacturing overhead incurred $35,000
(vi) Allocated manufacturing overhead for June 20X8
(vii) Cost of jobs completed $995,000
(viii) Cost of jobs sold (on account) at a margin of 33⅓% on sales $960,000
Required:
(a) Compute KRAFT ‘R’ US’ predetermined manufacturing overhead rate for 20X8.
(b) State the
KRAFT ‘R’ US uses the perpetual inventory system.
(c) Post the manufacturing overhead transactions to the Manufacturing Overhead T-account and state the
balance on the account before performing end of period closing entries. Show the journal entries
necessary to dispose of the variance.
(d)What is the balance in the Cost of Goods Sold account after the adjustment?
(e) Compute KRAFT ‘R’ US’gross profit earned on the jobs completed.
(f) Open T-accounts for Materials Inventory, Work in Process Inventory and Finished Goods Inventory.
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