Question

Week 5 Job Costing

The Fine Manufacturing Company uses job order costing system. The company uses machine hours to apply overhead cost to jobs. At the beginning of 2019, the company estimated that 150,000 machine hours would be worked and $900,000 overhead cost would be incurred during 2012.

The balances of raw materials, work in process (WIP), and finished goods at the beginning of 2012 were as follows:

• Raw materials: $40,000
• Work in process: $30,000
• Finished goods: $60,000

The Fine Manufacturing Company recorded the following transactions during 2012:

• a. Raw materials purchased on account, $820,000.
• b. Raw materials were requisitioned for use in production, $760,000 ($720,000 direct materials and $40,000 indirect materials).
• c. Direct labor labor, $150,000; indirect labor, $220,000; sales commission, $180,000; and administrative salaries, $400,000.
• d. Sales travel costs were $34,000.
• e. Utility costs incurred in the factory, $86,000.
• f. Advertising expenses were $360,000.
• g. Depreciation for the year was $700,000 ($560,000 relates to factory and $140,000 relates to selling and administrative activities).
• h. Insurance expired during the year, $20,000 ($14,000 relates to factory operations and $6,000 relates to selling and administrative activities).
• i. Fine manufacturing company worked 160,000 machine hours. Manufacturing overhead was applied to production.
• j. Goods costing $1,800,000 were completed during the year.
• k. The goods costing $1,740,000 were sold to customers for $3,000,000.

Required:

1. Prepare journal entries, T-accounts and income statement  from the above information.
2. Prepare a journal entry to close the balance in manufacturing overhead account (over or under applied manufacturing overhead) to cost of goods sold.

Answer 1

Journal Entries
Events	Particulars			Debit	Credit
a)	Raw Materials			$    820,000.00
	To Accounts Payable				$    820,000.00
b)	WIP			$    720,000.00
	Manu. OH			$      40,000.00
	To Raw Materials				$    760,000.00
c)	WIP			$    150,000.00
	Manu. OH			$    220,000.00
	To Factory Payroll				$    370,000.00
	Sales Commission			$    180,000.00
	Administrative Salaries			$    400,000.00
	To Cash				$    580,000.00
d)	Sales Travel			$      34,000.00
	To Cash				$      34,000.00
e)	Manu. OH			$      86,000.00
	To Cash				$      86,000.00
f)	Advertising Expense			$    360,000.00
	To Cash				$    360,000.00
g)	Manu. OH			$    560,000.00
	Depreciation Expense			$    140,000.00
	To Accumulated Depreciation				$    700,000.00
h)	Manu. OH			$      14,000.00
	Insurance Expense			$         6,000.00
	To Prepaid Insurance				$      20,000.00
i)	WIP			$    960,000.00
	To Manu. OH				$    960,000.00
	[($ 900000 / 150000) x 160000]
j)	Finished Goods			$ 1,800,000.00
	To WIP				$ 1,800,000.00
k)	Cost of Goods sold			$ 1,740,000.00
	To Finished Goods				$ 1,740,000.00
	Accounts Receivable			$ 3,000,000.00
	To Sales				$ 3,000,000.00

T-Accounts

Raw Materials					Work in Process
Beg. Bal.	$      40,000.00	b)	$    760,000.00		Beg. Bal.	$   30,000.00	j)	$ 1,800,000.00
a)	$    820,000.00	End. Bal.	$    100,000.00		b)	$ 720,000.00	End. Bal.	$      60,000.00
					c)	$ 150,000.00
					i)	$ 960,000.00
Finished Goods					Manufacturing OH
Beg. Bal.	$      60,000.00	k)	$ 1,740,000.00		b)	$   40,000.00	i)	$    960,000.00
j)	$ 1,800,000.00	End. Bal.	$    120,000.00		c)	$ 220,000.00
					e)	$   86,000.00
					g)	$ 560,000.00
					h)	$   14,000.00
					End. Bal.	$   40,000.00
Cost of Goods sold
k)	$ 1,740,000.00

	Income Statement
	Sales				$   3,000,000.00
Less:	Cost of Goods sold				$ (1,740,000.00)
	Gross Margin				$   1,260,000.00
Less:	Expenses:
	Administrative Salaries			$ (400,000.00)
	Sales Commission			$ (180,000.00)
	Sales Travel			$   (34,000.00)
	Advertising Expense			$ (360,000.00)
	Depreciation Expense			$ (140,000.00)
	Insurance Expense			$      (6,000.00)	$ (1,120,000.00)
	Net Income				$      140,000.00

Entry to close Overapplied OH
	Particulars			Debit	Credit
	Manu. OH			$      40,000.00
	To Cost of Goods sold				$      40,000.00