Question

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Practice Problem 2 Cost Flows, Journal Entries Specialty Components began 2002 with three jobs in process: Job No. TOO 247 Direct Material $ 77,200 TYPE OF COST Direct Labor $ 91,400 Overhead $ 34,732 Total S 203,332 251 253 176,600 145.400 209,800 169.600 79,724 _64.448 466,124 379.448 Totals $399.200 S470.800 $178.904 $1.048.904 During 2002, the following transactions occurred: 1. The firm purchased and paid for $532,000 of raw material. 2. Factory payroll records revealed the following: • Indirect labor incurred was $54,000. • Direct labor incurred was $602,800 and was associated with the jobs as follows: Job No. Direct Labor Cost 247 $17,400 251 8,800 253 21,000 254 136,600 255 145,000 256 94,600 257 179,400 S602 800 3. Material requisition forms issued during the year revealed the following: Indirect material issued totaled $76,000. Direct material issued totaled S468,400 and was associated with the jobs as follows: Job No. 247 251 253 254 Direct Material Cost $14,400 6,200 16,800 103,200 119,800 72,800 135,200 $468.400 255 256 257

Answer 1

Solution:

Part a – Journal Entries

Transaction	General Journal	Debit	Credit
1	Raw materials Inventory	$532,000
	Cash		$532,000
	(To record purchase of raw materials)
2	Work In Process Inventory (Direct labor)	$602,800
	Manufacturing Overheads (indirect labor)	$54,000
	Wages Payable		$656,800
	(To record assignment of labor)
3	Work In Process Inventory (Direct Materials)	$468,400
	Manufacturing Overheads (Indirect materials)	$76,000
	Raw materials inventory		$544,400
	(To record issuance of Raw materials)
4	Work In Process Inventory (Refer working below)	$241,120
	Manufacturing Overheads (Applied)		$241,120
	(To record applied manufacturing overheads)
	Working:
	Budgeted Manufacturing Overheads	$240,000
	Budgeted Direct labor costs	$600,000
	Overhead Rate	40%	of Direct Labor Cost
	Actual Direct Labor Cost incurred	$602,800
	Applied Manufacturing Overheads (Actual DL Cost $468,400*40%)	$241,120
	Manufacturing Overheads (244,400 - Indirect materials 76000 - Indirect labor 54000)	$114,400
	Accounts Payable		$114,400
	(To record other factory overhead costs)
5	Finished Goods Inventory (Refer Note 1)	$1,769,624
	Work In Process Inventory		$1,769,624
	(To record cost of jobs completed)
	Cost of Goods Sold (Refer Note 1)	$1,769,624
	Finished Goods Inventory		$1,769,624
	(To record cost of jobs sold)
	Cash or Accounts Receivable (Refer Note 1)	$2,264,774
	Sales Revenue		$2,264,774
	(To record sales revenue)

Working Note 1 -

Primary Calculation
	Job
	247	251	253	254	255	256	257	Total
Beginning Work in Process	$203,332	$466,124	$379,448					$1,048,904
Direct materials	$14,400	$6,200	$16,800	$103,200	$119,800	$72,800	$135,200	$468,400
Direct Labor	$17,400	$8,800	$21,000	$136,600	$145,000	$94,600	$179,400	$602,800
Applied Manufacturing Overheads (Direct labor cost *40%)	$6,960	$3,520	$8,400	$54,640	$58,000	$37,840	$71,760	$241,120
Total Manufacturing Cost	$242,092	$484,644	$425,648	$294,440	$322,800	$205,240	$386,360	$2,361,224
Job Status	Completed	Completed	Completed	Completed	Completed	In Process	In Process
Total Cost of Job Completed (247 through 255)	$1,769,624

Part b – Ending balance of Job Still in Process

Ending Balance of Job Still in Process	$$
Job 256	$205,240
Job 257	$386,360
Ending Balance of Job Still in Process	$591,600

Part c –

Refer Working Note 1

Cost of Jobs Completed = $1,769,624

Applied Manufacturing Overheads (Refer working above in journal entry) = $241,120

Manufacturing Overheads actually incurred = $244,400

Applied overheads are less than actual overheads, hence the Applied Overheads are UNDER APPLIED by $3,280

Cost of Jobs Completed, adjusted for under-applied = Cost of Jobs completed $1,769,624 + Under Applied Overheads $3,280

= $1,772,904

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