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Section 2 Cost System Chapter one Job –order costing
Problem 1-8
Problem (1-8): Ramos industries was established in the month of November and recorded the subsequent transactions throughout its initial month of functioning. Nov. 2 The materials were acquired on credit for a total amount of $200,000. Nov. 3 The cost for the job no. 500 involved the use of materials valued at $50,000. Nov. 9 The cost for the job no. 501 involved the use of materials valued at $75,000. Nov. 15 The cost for the job no. 502 involved the use of materials valued at $15,000. Nov. 28 The applied direct labor costs were allocated to the respective jobs as follows: job no. 500 incurred a cost of $4,500, job no.501 incurred a cost of $5,500, and job no. 502 incurred a cost of $2,500. Nov. 28 The applied manufacturing overhead was allocated to all jobs by using a rate of 150% of direct labor dollars. Nov. 29 The jobs denoted as job no. 500 and job no. 501 have been completed successfully and thereafter transferred to the warehouse designated for finished goods. Nov. 30 The job with identification number 500 was successfully sold, generating a revenue of $100,000. Nov. 31 The manufacturing overhead costs for the month of November, amounting to $39,000, were accurately recorded and then settled by cash payment. Nov. 31 The Manufacturing Overhead account was closed directly to the Cost of Goods Sold. Required: a. Prepare journal entries for each of the aforementioned transactions as illustrated in the Job Order Costing section. b. Calculate the value at which the Cost of Goods Sold is presented in the income statement of the firm for the period ending on November 30. c. Determine the inventory balances of the firm reported in the company’s balance sheet dated November 30. d. In the month of November, was there an overapplication or underapplication of manufacturing overhead? Discuss. Solution
Nov 28 -Applied manufacturing overhead for each job: Job 500: $4,500 × 1.5 = $6,750 Job 501: $5,500 × 1.5 = $8,250 Job 502: $2,500 × 1.5 = $3,750 Nov. 29 - Transfer of completed jobs to Finished Goods Inventory Total cost for Job 500: $50,000 (materials) + $4,500 (labor) + $6,750 (overhead) = $61,250 Total cost for Job 501: $75,000 (materials) + $5,500 (labor) + $8,250 (overhead) = $88,750 Nov. 31 - Closing Manufacturing Overhead to Cost of Goods Sold Total applied manufacturing overhead: $18,750 Actual manufacturing overhead: $39,000 Difference (underapplied overhead): $39,000 - $18,750 = $20,250 Part (b): Calculate Cost of Goods Sold Cost of Goods Sold for Job 500: $61,250 Adjustment for underapplied manufacturing overhead: $20,250 Total Cost of Goods Sold = $61,250 + $20,250 = $81,500