Concept explainers
Journal Entries and T-Accounts 103-1,103-2
The Polaris Company uses a job-order costing system. The following transaction occurred in October:
a. Raw materials purchased on account. $210.000.
b. Raw materials used in production. $190.000 ($17S.000 direct materials $12.000 indirect materials).
c. Accrued direct Labor cost of $90,000 and indirect labor cost of $110,000.
d.
e. Other
f. The company applies manufacturing materials cost to production using predetermined rate of $8 per machine hour. A total 30.000 machine hour were used in October.
g. Jobs costing $520,000 to their
h. jobs that had cost $480,000 according to their jobs cost sheet were shipped to customer during the month. These jobs were sold on account at 25%above cost.
1. Prepare
2. Prepare T-accounts for ‘Manufacturing materialsEd Work in Process.
Compute the in each account: assuming that Work in Process has a beginning of $42,000.
Journal entries to be passed for transactions related to production describes, the journal entries to be passed for each transactions related to manufacturing of product.
Requirement1:
The Journal entries to be passed for the transactions for manufacturing the product.
Solution: The Journal entries for the transactions occurred for the month of October for Polaris Company is as follows:
IN THE BOOKS OF POLARIS COMPANY | ||||||
FOR THEOCTOBER MONTH | ||||||
S.NO. | ACCOUNTS TITLES AND EXPLANATIONS | DEBIT IN $ | CREDIT IN $ | |||
a. | Raw Material Inventory Account Dr. | 210,000 | ||||
Accounts Payable | 210,000 | |||||
(For raw material purchased on account) | ||||||
b. | Work in Process Inventory Account Dr. | 178,000 | ||||
Manufacturing Overheads Account Dr. | 12,000 | |||||
Raw Material Inventory Account | 190,000 | |||||
(For issue of both direct anda indirect material to production) | ||||||
c. | Work in Process Inventory Account Dr. | 90,000 | ||||
Manufacturing Overheads Account Dr. | 110,000 | |||||
Wages Payable | 200,000 | |||||
(For direct and indirect wages accrued and incurred for production) | ||||||
d. | Manufacturing Overheads Account Dr. | 40,000 | ||||
Accumulated Depreciation-Equipment Account | 40,000 | |||||
(For depreciation charged on factory Equipment) | ||||||
e. | Manufacturing overheads Account Dr. | 70,000 | ||||
Accrued manufacturing overheads Account | 70,000 | |||||
(For manufacturing overhead incurred during the month) | ||||||
f. | Work in Process Inventory Account Dr. | 240,000 | ||||
Manufacturing overheads Account | 240,000 | |||||
(For manufacturing overheads applied to work in process based on machine hours) | ||||||
g. | Finished Goods Inventory Account Dr. | 520,000 | ||||
Work in Process Inventory Account | 520,000 | |||||
(For goods completed during the month) | ||||||
h. | Cost of Goods sold account Dr. | 480,000 | ||||
Finished Goods Inventory Account | 480,000 | |||||
(for cost of goods sold transferred from finished goods) | ||||||
Accounts Receivable Account Dr. | 600,000 | |||||
Sales Revenue Account | 600,000 | |||||
(For sales made on account) | ||||||
Explanation: The explanation for each journal entry shall be made as follows:
- Raw material purchased increases the inventory balance and the liability.
- Raw material used as direct and indirect material shall be debited to work in process and manufacturing overheads account.
- Wages incurred shall be charged in work in process inventory for direct wages and in manufacturing overheads for indirect wages.
- Depreciation charged on equipment shall be indirect expense debited to manufacturing overheads.
- Overheads incurred during the period shall be debited to manufacturing overheads.
- Manufacturing overheads are applied to work in process inventory on the basis of pre-determined overhead rate and actual machine hours worked. The amount is computed as follows:
Pre-determined Overhead rate: $ 8 per machine hour
Machine hours: 30,000 machine hours
Overheads Applied: Machine hours × Pre-determined overhead rate
= 30,000 hours × $ 8.00 per machine hour= $240,000
Cost of Goods sold: $480,000
Profit Margin =25% of cost
Gross margin= $480,000 × 25% = $120,000
Sales Revenue = Cost of Goods sold + Gross Margin = $480,000+$120,000 = $600,000
Answer to Problem 5E
Solution: The Journal entries for the transactions occurred for the month of October for Polaris Company is as follows:
IN THE BOOKS OF POLARIS COMPANY | ||||||
FOR THEOCTOBER MONTH | ||||||
S.NO. | ACCOUNTS TITLES AND EXPLANATIONS | DEBIT IN $ | CREDIT IN $ | |||
a. | Raw Material Inventory Account Dr. | 210,000 | ||||
Accounts Payable | 210,000 | |||||
(For raw material purchased on account) | ||||||
b. | Work in Process Inventory Account Dr. | 178,000 | ||||
Manufacturing Overheads Account Dr. | 12,000 | |||||
Raw Material Inventory Account | 190,000 | |||||
(For issue of both direct anda indirect material to production) | ||||||
c. | Work in Process Inventory Account Dr. | 90,000 | ||||
Manufacturing Overheads Account Dr. | 110,000 | |||||
Wages Payable | 200,000 | |||||
(For direct and indirect wages accrued and incurred for production) | ||||||
d. | Manufacturing Overheads Account Dr. | 40,000 | ||||
Accumulated Depreciation-Equipment Account | 40,000 | |||||
(For depreciation charged on factory Equipment) | ||||||
e. | Manufacturing overheads Account Dr. | 70,000 | ||||
Accrued manufacturing overheads Account | 70,000 | |||||
(For manufacturing overhead incurred during the month) | ||||||
f. | Work in Process Inventory Account Dr. | 240,000 | ||||
Manufacturing overheads Account | 240,000 | |||||
(For manufacturing overheads applied to work in process based on machine hours) | ||||||
g. | Finished Goods Inventory Account Dr. | 520,000 | ||||
Work in Process Inventory Account | 520,000 | |||||
(For goods completed during the month) | ||||||
h. | Cost of Goods sold account Dr. | 480,000 | ||||
Finished Goods Inventory Account | 480,000 | |||||
(for cost of goods sold transferred from finished goods) | ||||||
Accounts Receivable Account Dr. | 600,000 | |||||
Sales Revenue Account | 600,000 | |||||
(For sales made on account) | ||||||
Explanation of Solution
The explanation for each journal entry shall be made as follows:
- Raw material purchased increases the inventory balance and the liability.
- Raw material used as direct and indirect material shall be debited to work in process and manufacturing overheads account.
- Wages incurred shall be charged in work in process inventory for direct wages and in manufacturing overheads for indirect wages.
- Depreciation charged on equipment shall be indirect expense debited to manufacturing overheads.
- Overheads incurred during the period shall be debited to manufacturing overheads.
- Manufacturing overheads are applied to work in process inventory on the basis of pre-determined overhead rate and actual machine hours worked. The amount is computed as follows:
Pre-determined Overhead rate: $ 8 per machine hour
Machine hours: 30,000 machine hours
Overheads Applied: Machine hours × Pre-determined overhead rate
= 30,000 hours × $ 8.00 per machine hour= $240,000
Cost of Goods sold: $480,000
Profit Margin =25% of cost
Gross margin= $480,000 × 25% = $120,000
Sales Revenue = Cost of Goods sold + Gross Margin = $480,000+$120,000 = $600,000
To conclude, it must be said that ending manufacturing overheads represent under/over-applied overheads and Ending work in process balance represent the cost of goods still in process.
Requirement2:
The T-Accounts shall be made for manufacturing overheads and work in process account.
Answer to Problem 5E
Solution: The T-accounts are presented as follows:
MANUFACTURING OVERHEADS | |||||
Raw material Inv. | 12,000 | Work in process | 240,000 | ||
Wages Payable | 110,000 | ||||
Accumulated Depreciation | 40,000 | ||||
Accrued Overheads | 70,000 | ||||
Ending balance | 8,000 | ||||
WORK IN PROCESS INVENTORY | |||||
Beginning Balance | 42,000 | Finished Goods Inventory | 520,000 | ||
Raw material Inv. | 178,000 | ||||
Wages Payable | 90,000 | ||||
Manufacturing Overheads | 240,000 | ||||
Ending Balance | 30,000 |
Explanation of Solution
- The Manufacturing overheads accounts is prepared by debiting the indirect cost actually incurred during the period and credited with the amount of overheads applied during the period.
- Work in process accounts shall be prepared by debiting the direct cost incurred and manufacturing overheads applied and credited with the amount of goods completed during the year.
To conclude, it must be said that ending manufacturing overheads represent under/over-applied overheads and Ending work in process balance represent the cost of goods still in process.
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Chapter 3 Solutions
INTRO MGRL ACCT LL W CONNECT
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