Chapter 12, Problem 13PSA

Requirement a. and c.

To determine

Record the preceding events in a horizontal statements model and record the closing entry for over- or under applied manufacturing overhead.

Explanation of Solution

Job order costing: Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Manufacturing overhead costs: The costs, which do not relate directly with the manufacturing of products, are referred to as manufacturing overhead costs or indirect costs. Manufacturing overhead cost per unit is the cost of manufacturing overhead incurred to produce one unit of product.

Events:

1. Cash receipts of $30,000 from the issuance of common stocks.

2. Purchased raw materials of $7,000 and worked on three job orders.

3. Direct materials of $1,400 used for Job 1.

4. Cash of $3,000 paid to employees for the completion of Job 1.

5. Direct materials of $2,000 used for Job 2.

6. Cash of $4,000 paid to employees for the completion of Job 2.

7. Direct materials of $3,000 used for Job 3.

8. Cash of $2,000 paid to employees for the completion of Job 3.

9. Manufacturing overhead of $1,800 applied to Job 1.

10. Manufacturing overhead of $2,400 applied to Job 2.

11. Manufacturing overhead of $1,200 applied to Job 3.

12. Cost of Job 2 for $8,400 is transferred from work-in progress inventory to finished goods inventory.

13. Cost of Job 3 for $6,200 is transferred from work-in progress inventory to finished goods inventory.

14. Cash proceeds of $10,000 from the sale of Job 3.

15. The cost of goods sold for Job 1 of $6,200 is recognized.

16. Corporation MM paid $400 for selling and administrative expenses.

17. Corporation MM paid cash of $5,650 for actual factory overhead.

18. The under-application of overhead is $\left(\$5,650-\$5,400\right)$ $250.

Record the preceding events in a horizontal statements model and record the closing entry for over- or under applied manufacturing overhead.

Table (1)

Requirement b.

To determine

Reconcile all subsidiary accounts with their respective control accounts.

Explanation of Solution

Job order costing: Job order costing is one of the methods of cost accounting under which cost is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products produced are significantly different from each other.

Reconcile all subsidiary accounts with their respective control accounts.

Items	Job 1	Job 2	Job 3
Direct materials	$1,400	$2,000	$3,000
Direct labor	$3,000	$4,000	$2,000
Manufacturing overhead	$1,800	$2,400	$1,200
Total product cost	$6,200	$8,400	$6,200

Table (2)

d.

To determine

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a classified balance sheet for the year ended 2015.

Explanation of Solution

Schedule of cost of goods manufactured and sold: The schedule which reports all the expenses incurred by a company to sell the goods during the given period.

Prepare the cost of goods manufactured and sold for the year ended 2015:

Corporation MM
Cost of goods manufactured and sold
For the Year Ending 2015
Particulars	Amount
Beginning raw materials inventory	$0
Add: Purchases	$7,000
Raw materials available	$7,000
Less: Ending raw material inventory	($600)
Raw materials used	$6,400
Labour	$9,000
Overhead	$5,650
Total manufacturing costs	$21,050
Add: Beginning Work In Process inventory	$0
Total Work In Process inventory	$21,050
Less: Ending Work In Process inventory (Refer Table (2))	($6,200)
Cost of goods manufactured	$14,850
Add: Beginning finished goods inventory	$0
Goods available	$14,850
Less: Ending finished goods inventory (Refer Table (2))	($8,400)
Cost of goods sold	$6,450

Table (3)

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Prepare an income statement for the year ended 2015:

Corporation MM
Income statement
For the Year Ending December 31, 2015
Details	Amount
Sales Revenue	$10,000
Less: Cost of goods sold (Refer Table (3))	($6,450)
Gross margin	$3,550
Less: Selling and administrative expenses	($400)
Net Income	$3,150

Table (4)

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and claims of stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Prepare the balance sheet as of 2015:

Corporation MM
Balance sheet
As of 2015
Assets	Amount
Cash	$17,950
Raw material inventory	$600
Work-in-process inventory	$6,200
Finished  goods inventory	$8,400
Total assets	$33,150
Equity
Common Stock	$30,000
Retained  earnings	$3,150
Total equity	$33,150

Table (5)