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 | |
Accumulated |
1,980 | ||
(Record depreciation on account) | |||
e | Work in process(228 hours × $54) | 12,312 | |
Factory overhead | 12,312 | ||
(Record overhead applied to jobs) | |||
f | Finished goods Table (3) | 34,804 | |
Work in process | 34,804 | ||
(Record completion of job) | |||
g | 34,450 | ||
Sales | 34,450 | ||
(Record sales on account) | |||
h | Cost of goods sold Table (4) | 22,294 | |
Finished goods | 22,294 | ||
(Record cost of goods sold) |
Table (1)
Working note:
The material requisitioned to jobs is calculated as follows:
Job | Direct materials |
Direct labor |
301 | 2,960 | 2,775 |
302 | 3,620 | 3,750 |
303 | 2,400 | 1,875 |
304 | 8,100 | 6,860 |
305 | 5,100 | 5,250 |
306 | 3,750 | 3,340 |
25,930 | 23,850 |
Table (2)
Compute the cost of jobs finished as follows:
Job | Direct materials |
Direct labor |
Factory overhead | Total |
301 | 2,960 | 2,775 | 1,350 | 7,085 |
302 | 3,620 | 3,750 | 1,944 | 9,314 |
303 | 2,400 | 1,875 | 1,620 | 5,895 |
305 | 5,100 | 5,250 | 2,160 | 12,510 |
34,804 |
Table (3)
Compute the cost of goods sold as follows:
Job | Amount ($) |
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
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- Entries and schedules for unfinished jobs and completed jobs Kurtz Fencing Inc. uses a job order cost system. The following data summarize the operations related to production for March, the first month of operations: A. Materials purchased on account, 45,000. B. Materials requisitioned and factory labor used: C. Factory overhead costs incurred on account, 1,800. D. Depreciation of machinery and equipment, 2,500. E. The factory overhead rate is 30 per machine hour. Machine hours used: F. Jobs completed: 301, 302, 303, and 305. G. Jobs were shipped and customers were billed as follows: Job 301, 8,500; Job 302, 16,150; Job 303, 13,400. Instructions 1. Journalize the entries to record the summarized operations. 2. Post the appropriate entries to T accounts for Work in Process and Finished Goods, using the identifying letters as transaction codes. Insert memo account balances as of the end of the month. 3. Prepare a schedule of unfinished jobs to support the balance in the work in process account. 4. Prepare a schedule of completed jobs on hand to support the balance in the finished goods account.arrow_forwardTerrills Transmissions uses a job order cost system. A partial list of the accounts being maintained by the company, with their balances as of November 1, follows: The following transactions were completed during November: a. Materials purchases on account during the month, 74,000. b. Materials requisitioned during the month: 1. Direct materials, 57,000. 2. Indirect materials, 11,000. c. Direct materials returned by factory to storeroom during the month, 1,100. d. Materials returned to vendors during the month prior to payment, 2,500. e. Payments to vendors during the month, 68,500. Required: 1. Prepare general journal entries for each of the transactions. 2. Post the general journal entries to T-accounts. 3. Balance the accounts and report the balances of November 30 for the following: a. Cash b. Materials c. Accounts Payablearrow_forwardEntries for costs in a job order cost system Royal Technology Company uses a job order cost system. The following data summarize the operations related to production for March: A. Materials purchased on account, 770,000. B. Materials requisitioned, 680,000, of which 75,800 was for general factory use. C. Factory labor used, 756,000, of which 182,000 was indirect. D. Other costs incurred on account for factory overhead, 245,000; selling expenses, 171,500; and administrative expenses, 110,600. E. Prepaid expenses expired for factory overhead were 24,500; for selling expenses, 28,420; and for administrative expenses, 16,660. F. Depreciation of factory equipment was 49,500; of office equipment, 61,800; and of office building, 14,900. G. Factory overhead costs applied to jobs, 568,500. H. Jobs completed, 1,500,000. I. Cost of goods sold, 1,375,000. Instruction Journalize the entries to record the summarized operations.arrow_forward
- JOURNAL ENTRIES FOR MATERIAL, LABOR, OVERHEAD, AND SALES Micro Enterprises had the following job order transactions during the month of April. Record the transactions in the general journal, including issuance of materials, labor, and factory overhead applied; completed jobs sent to finished goods inventory; closing of the under- or overapplied factory overhead to the cost of goods sold account; and sale of finished goods. Apr.1 Purchased materials on account, 35,000. 10 Issued direct materials to Job No. 33, 10,000. 11 Issued direct materials to Job No. 34, 8,000. 12 Issued direct materials to Job No. 35, 11,000. 25 Incurred direct labor: On Job No. 33, 6,000 On Job No. 34, 4,000 On Job No. 35, 5,000 25 Applied factory overhead: To Job No. 33, 1,500 To Job No. 34, 1,200 To Job No. 35, 1,600 30 Transferred Job Nos. 3335 to the finished goods inventory account as products F, G, and H, respectively. 30 Sold products F, G, and H for 20,000, 16,000, and 22,000, respectively. 30 Actual factory overhead for Job Nos. 3335, 4,220.arrow_forwardThe following events occurred during March for Ajax Company. Prepare a journal entry for each transaction. Materials were purchased on account for $35,429. Materials were requisitioned to begin work on Job C1S In the amount of $25,259. Direct labor expense for Job C15 was $24,129. Actual overhead was incurred on account of $32,852. Factory overhead was charged to Job C15 at the rate of 200% of direct labor. Job C15 was transferred to finished goods at $97,646. Job C15 was sold on account for $401,000.arrow_forwardHughes Products Inc. uses a job order cost system. Selected transactions dealing with factory items for the month follow: a. Requisitioned indirect materials from storeroom, 3,200. b. Purchased, on account, factory supplies for future needs, 4,400. c. Purchased parts, on account, for repairing a machine, 1,400. d. Requisitioned factory supplies from storeroom, 900. e. Returned other defective factory supplies to vendor, 700. f. Factory rent accrued for the month, 2,400. g. Returned previously requisitioned factory supplies to store room, 350. h. Depreciation of machinery and equipment, 2,800. i. Payroll taxes liability for month, 3,200. j. Heat, light, and power charges payable for the month, 6,400. k. Expired insurance on inventories, 1,350. l. Factory overhead applied to production, 34,600. m. Indirect labor for the month, 2,600. n. Goods completed and transferred to finished goods: materials, 14,400; labor, 40,400; factory overhead, 30,400. Required: Record the previous transactions. Assume that the records include a control account and a subsidiary ledger for factory overhead, to which the entries will be posted at some later date.arrow_forward
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