Chapter 19, Problem 1BP

1.

To determine

Ascertain the total of each production cost incurred for September and total cost assigned to each job.

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.

Ascertain the total of each production cost incurred for September and total cost assigned to each job.

Particulars	114	115	116	September Total
From the month of August
Direct materials	14,000	18,000
Direct labor	18,000	16,000
Applied overhead	9,000	8,000
Beginning work in process	41,000	42,000		83,000
For the month of September
Direct materials	100,000	170,000	80,000	350,000
Direct labor	30,000	68,000	120,000	218,000
Applied overhead	15,000	34,000	60,000	109,000
Total costs added in September	145,000	272,000	260,000	677,000
Total costs	186,000	314,000	260,000	760,000

(Table 1)

Note:

Applied overhead for the month of August and September equals the 50% of the direct labor cost.

2.

To determine

Prepare journal entry to record the transactions for the month of September.

Explanation of Solution

Prepare journal entry to record the transactions for the month of September.

Date	Accounts title and explanation	Debit ($)	Credit ($)
a.	Raw Material inventory	400,000
	Accounts payable		400,000
	(To record the purchase of materials on account.)
b.	Work in process inventory	350,000
	Raw Materials inventory		350,000
	(To assign cost of direct materials used)
c.	Work in process inventory	218,000
	Cash		218,000
	(To record the direct labor)
d.	Factory overhead	14,000
	Cash		14,000
	(To record indirect labor.)
e.	Work in process inventory	109,000
	Factory Overhead		109,000
	(To apply overhead to jobs.)
f.	Factory overhead	30,000
	Raw materials inventory		30,000
	(To record indirect materials )
	Factory overhead	12,000
	Cash		12,000
	(To record the factory utilities)
	Factory overhead	30,000
	Accumulated Depreciation-Factory      Equipment		30,000
	(To record  other  factory overhead)
	Factory overhead	20,000
	Cash		20,000
	(To record the factory rent)
g.	Finished goods inventory ( job 114 & 115)	500,000
	Work in process inventory		500,000
	(To record jobs completed$(\$186,000+\$314,000)$ )
h.	Cost of goods  sold (114)	186,000
	Finished goods inventory		186,000
	(To record the cost of sale job)
i.	Cash	380,000
	Sales		380,000
	(To record the sale of job)
j.	Cost of goods sold	3,000
	Factory overhead (1)		3,000
	(To assign underapplied overhead)

(Table 2)

Working Note:

Calculate the amount factory overhead:

Particulars	Amount in     $	Amount in $
Overhead applied to  jobs		109,000
Overhead incurred:
Indirect materials	30,000
Indirect labor	14,000
Factory rent	20,000
Factory utilities	12,000
Factory Equipment Depreciation	30,000	106,000
Overapplied overhead		3,000

 (Table 3)

…… (1)

3.

To determine

Prepare a schedule of cost of goods manufactured.

Explanation of Solution

Company P
Schedule of costs of goods manufactured
For month  ended September 30
Particulars	Amount in $
Direct materials used	350,000
Direct labor used	218,000
Factory overhead applied	109,000
Total manufacturing costs	677,000
Add work in process March 31 (Jobs 114& 115)	83,000
Total cost of work in process	760,000
Deduct work in process, September 30 (Job 116)	(260,000)
Cost of goods manufactured	500,000

(Table 4)

4.

To determine

Compute gross profit for September and also show the manner by which the inventories on September 30 balance sheet are presented.

Explanation of Solution

Compute gross profit for September.

Particulars	Amount in $
Sales	380,000
Cost of goods sold $\left(\$186,000-\$3,000\right)$	(183,000)
Gross profit	197,000

(Table 5)

Show the manner by which the inventories on September 30 balance sheet is presented.

Particulars	Amount in $
Inventories
Raw materials (2)	170,000
Work in process (Job 116)	260,000
Finished goods (Job 115)	314,000
Total  Inventories	744,000

(Table 6)

Working notes:

Calculate the amount of raw materials:

Particulars	Amount in $
Beginning  raw materials  inventory	150,000
Purchase	400,000
Direct materials used	(350,000)
Indirect raw materials used	(30,000)
Ending  raw materials inventory	170,000

(Table 7)

…… (2)

5.

To determine

Discuss the manner by which the adjustment the over- or underapplied overhead is closed to Cost of Goods Sold will have an impact on business decision making regarding to individual jobs or batches of job.

Explanation of Solution

The overhead for the business is being overapplied by $3,000. This will have an impact on the profits earned by the company at job level  by understating the job.