Chapter 17
Exercise 17.1
Listed below are seven technical accounting terms introduced or emphasized in this chapter. Job order costing, Overhead application rate, Overapplied overhead, Activity-based costing, Cost driver, Cost of finished goods manufactured, and Job cost sheet. Each of the following statements may (or may not) describe these technical terms. For each statement, indicate the term described, or answer "None" if the statement does not correctly describe any of the terms.
a. An activity base that can be traced directly to units produced and can be used as a denominator in computing an overhead application rate. Cost driver.
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b. The total of all direct labor, direct materials and manufacturing overhead transferred from work in process to finished goods. Cost of finished goods manufactured.
c. A means of assigning indirect product costs to work in process during the period. Overhead application rate.
d. A debit balance remaining in the Manufacturing Overhead account at the end of the period. None. A debit balance remaining at the Manufacturing Overhead is called Under applied overhead.
e. The type of cost accounting system likely to be used by a construction company. Job order costing.
f. The type of cost accounting method likely to be used for overhead costs. Activity-based costing.
Exercise 17.3
Riverside Engineering is a machine shop that uses order costing. Overhead is applied to individual jobs at a predetermined rate based on direct labor costs. The job cost sheet for job no. 321 appears below.
| Job Cost Sheet | |
| JOB NUMBER: 321 | DATE STARTED: May 10 |
| PRODUCT: 2”Brass Check Valves | DATE COMPLETED: May 21 |
| UNITS COMPLETED: 4,000 | |
| Direct materials used | $7,720 |
| Direct labor | $1,400 |
| Manufacturing overhead applied | $3,080 |
| Total cost of job no 321 | $12,200 |
| Unit cost ($12,200-r-4,000 units) | $3.05 |
Prepare journal entries to:
Summarize the manufacturing costs charged to job no. 321 (Use one compound entry.)
| General Journal | ||
| Work in process inventory | $12,200 | |
| Materials inventory | $7,720 | |
| Direct labor | $1,400 | |
| Manufacturing Overhead | $3,090 | |
| Manufacturing costs incurred on job no. 321 |
Record the completion of job no. 321
| Finished Goods Inventory | $12,200 | |
| Work in Process Inventory | $12,200 | |
| (To record completion of Job no. 321) |
Record the credit sale of 2,100 units from job no. 321 at a unit sales price of $5. Record in a separate entry related cost of goods sold.
| Accounts Receivable | $10,500 | |
| Sales | $10,500 | |
| (To record credit sales of 2,100 units from Job no. 321 @ $5 per unit) |
| Cost of Goods Sold | $6,405 | |
| Finished Goods Inventory | $6,405 | |
| (To record cost of sales of 2,100 units from Job no. 321 @ $5 per unit) | ||
| 2,100 units * $3.05 per unit |
Problem 17.2A
The following information relates to the manufacturing operations of O’Shaughnessy Mfg. Co. during the month of march. The company uses job order costing.
Purchases of direct materials during the month amount to $59,700. (All purchases were made on account.)
Materials requisitions issued by the Production Department during the month total $56,200.
Time cards of direct workers show 2,000 hours worked on various jobs during the month, for a total direct labor cost of $30,000.
Direct workers were paid $26,300 in March.
Actual overhead costs for the month amount to $34,900 (for simplicity, you may credit Accounts Payable).
Overhead is applied to jobs at a rate of $18 per direct labor hour.
Jobs with total accumulated costs of $100,000 were completed during the month.
During March, units costing $120,000 were sold for $200,000. (All sales were made on account.)
Prepare general journal entries to summarize each of these transactions in the company's general ledger accounts.
| a. | Dr | Cr |
| Materials Inventory | 59,700 | |
| Accounts Payable | 59,700 | |
| To record purchases of direct materials during march |
| b. | Dr | Cr |
| Work in process inventory | 56,200 | |
| Materials inventory | 56,200 | |
| To record materials placed into production during |
| c. | Dr | Cr |
| Work in Process Inventory | 30,000 | |
| Direct Labor | 30,000 | |
| To record direct labor costs applicable to production |
| d. | Dr | Cr |
| Direct Labor | 26,300 | |
| Cash | 26,300 | |
| To record direct labor payrolls in March |
| e. | Dr | Cr |
| Manufacturing Overhead | 34,900 | |
| Accounts Payable | 34,900 | |
| To record actual overhead costs in March |
| f. | Dr | Cr |
| Work in Process Inventory | 36,000 | |
| Manufacturing Overhead | 36,000 | |
|
To record overhead applied to production during March ($18 per labor hour * 2,000 hours = $36,000) |
| g. | Dr | Cr |
| Finished Goods Inventory | 116,000 | |
| Work in Process Inventory | 116,000 | |
| To record cost of completed jobs in March. |
| h. | Dr | Cr |
| Accounts Receivable | 210,000 | |
| Sales | 210,000 | |
| To summarize credit sales in March | ||
| Cost of Goods Sold | 128,000 | |
| Fished Goods Inventory | 128,000 | |
| To record cost of units sold during March |
Chapter 18:
Exercise 18.1
Listed below are six technical accounting terms introduced or emphasized in this chapter. Job order costing, Equivalent units, Process costing, cost of finished goods manufactured, Conversion costs, Production cost report.
Each of the following statements may or may not describe these technical terms. For each statement, indicate the term described, or answer "None" if the statement does not correctly describe any of the terms.
a. The type of cost accounting method likely to be used in a Coca-Cola bottling plant. Process Costing
b. Direct labor and overhead consumed in a production process. Conversion Costs
c. A measure of the quantity of production work done during a time period, including work on partially completed units. Equivalent units.
d. Process cost information for the period, including the physical flow and total cost to account for. Production cost report.
e. The type of cost accounting method likely to be used by a construction company. Job order costing.
Exercise 18.2
Starr Scopes, Inc., produces telescopes for use by high school students. All direct materials used in the production of telescopes are added at the beginning of the manufacturing process. Labor and overhead are added evenly thereafter, as each unit is assembled, adjusted, and tested. Starr Scopes uses process costing and had the following unit production information available for the months of January and February:
|
Jan |
Feb |
|
| Number of units in beginning work in process inventory |
0 |
50 |
| Number of units started during the month |
200 |
300 |
| Total number of units transferred to finished goods |
150 |
250 |
The units remaining in work in process at the end of January were approximately 40 percent complete. During the month of February, all of the beginning work in process units was completed and the units remaining in work in process at the end of the month were approximately 75 percent complete.
For the month of January, calculate the equivalent units produced for each of the two cost categories-direct materials and labor and overhead.
| Direct materials | Labor and overhead | |
| Begin work in process | 0 | 0 |
| Started and completed | 150 | 150 |
| End work in process | 50 | 20 = (50 *0.4) |
| Total equivalent units | 200 | 170 |
For the month of February, calculate the equivalent units produced for each of the two cost categories-direct materials and labor and overhead.
| Direct materials | Labor and overhead | |
| Begin work in process | 0 | 30 = (50 *0.6) |
| Started and completed | 200 | 200 |
| End work in process | 100 | 75 = (100 *0.75) |
| Total equivalent units | 300 | 305 |
Number of units started and completed
| Direct materials | Labor and overhead | |
| Units transferred to finished goods | 150 | 250 |
| Less: Units in beginning work in process | (0) | (50) |
| Units started and completed | 150 | 200 |
