Problem 1: Job Order Costing Cycle
Excellent Ltd. had the following inventories on 1 April 2019:
| $ | |
| Raw Materials | 50,000 |
| Finished Goods | 28,000 |
| WIP – Materials | 2,000 |
| WIP – Labor | 30,000 |
| WIP – FOH | 12,000 |
During the month, the cost of materials purchased was $120,000. Also, the direct labor cost was $160,000 and factory overhead applicable to production was $60,000. On 30 April, the inventories were as follows:
| $ | |
| Raw Materials | 46,000 |
| Finished Goods | 44,000 |
| WIP – Materials | 10,000 |
| WIP – Labor | 18,000 |
| WIP – FOH | 8,000 |
Required: Prepare journal entries on April 30 to show the flow of cost through the proper summary accounts, and also give the subsidiary records.
Solution
Job Order Costing Cycle
Calculations Explained
Raw Materials Consumed
| $ | |
| Opening Inventory | 50,000 |
| + Purchases | 1,20,000 |
| Materials Available For Use | 1,70,000 |
| – Ending Inventory | 46,000 |
| Materials Used | 1,24,000 |
W.I.P. Material
W.I.P Labor
W.I.P. FOH
Finished Goods
Problem 2: Charging Actual FOH to Jobs
The Moon Manufacturing Co. has a partial job order costing system instead of predetermining a factory overhead rate.
The company computes a separate factory overhead rate at the end of each month. This rate is used to charge the factory overhead to the jobs worked on during the month. The number of direct labor hours used on the jobs is the basis of such allocation.
The table below shows the actual factory overhead costs and the direct labor hours for May and June.
| May | June | |
| Actual Factory Overhead Costs | $6,000 | $12,000 |
| Actual Direct Labor Hours | 15,000 hrs. | 20,000 hrs. |
During this two-month period, one customer sent in an identical order each month, calling for the production of 1,000 units. This required 400 direct laor hours at $1 per hour and materials amounting to $750.
Required:
- Calculate the total cost and unit cost for the job across the two months
- Comment on the method of charging actual factory overhead costs to jobs
Solution
It is clear from the above calculation that charging actual FOH costs to jobs gives inaccurate and misleading results. The company should use predetermined FOH rates for correct calculations and control.
Calculations Explained
Problem 3: Journal Entries For Cost Cycle
John Manufacturing Company has a job order costing system. It compiled the following data for 2019.
| Material and Supplies Purchased | 242,000 |
| Direct Material Used | 190,000 |
| Supplies Used | 20,000 |
| Direct Labor | 150,000 |
| Other Labor | 35,000 |
| Utility Cost for the Year | 65,000 |
| Miscellaneous Overhead | 40,000 |
| Depreciation Equipment | 22,000 |
| Applied Factory Overhead (20% of direct labor costs) | |
| Cost of Goods completed (materials, $170,000; labor, $130,000) | 3,26,000 |
| Sales | 5,00,000 |
| Selling and Administrative Expenses | 1,10,000 |
Required:
- Prepare the appropriate journal entries
- Calculate the net income
Solution
Journal Entries
Net Income
| $ | |
| Sales | 500,000 |
| – Cost of Sales | 326,000 |
| GP | 174,000 |
| – Selling & Administrative Expenses | 110,000 |
| Net Income | 64,000 |