Question

Problem 4 (Textbook Reference: P24) Demonstrate job costing Log Cabin Homes, Inc. uses a job cost system to account for its jobs, which are prefabricated houses. As of January 1, 2014, its records showed inventories as follows: Materials and supplies Work in process (Job Nos. 22 and 23) Finished goods (Job No. 21) S 100,000 180,000 140,000 The work in process inventory consisted of two jobs: Direct Manufacturing MaterialsDirect Labor $ 36,000 Job No Overhead 40,000 S 28,000 S S 68,000 S 20,000 16.000 S 84.000 36.000 $180,000 23 S76,000 Cost and sales data for 2014: Materials purchased on account, $400,000. 2. Direct materials used: Job No. 22, $60,000; Job No. 23, $120,000; Job No. 24, $180,000. Indirect materials used $10,000. Direct labor costs: Job No. 22, $100,000; Job No. 23, $200,000; and Job No. 24、$80,000. Indirect labor costs, $80,000 Overhead is assigned to jobs at $100 per machine-hours. Job No. 22 used 500 machine-hours, Job No. 23 used 1,000 machine-hours, and Job No. 24 used 300 machine hours in January 3. 4. 5. Job Nos. 22 and 23 were completed and transferred to Finished Goods Inventory 6. Job Nos. 21 and 22 were sold on account for $1,200,000, total 7. Manufacturing overhead costs incurred, other than indirect materials and indirect labor, were depreciation, $80,000, and heat, light, power, miscellaneous, $40,000. Required a. Prepare journal entries to assign the preceding costs to jobs. Show the appropriate entries debiting Finished Goods Inventory and Cost of Goods Sold. Transfer overapplied or underapplied overhead to Cost of Goods Sold. (Hint Recreate the T-Account Template we made together in class to keep track of your job casts before you record your journal entries. A T-Account template has been provided on the next page) Assuming selling and administrative expenses were S100,000, prepare and income statement for 2014 b.

Answer 1

Solution a:

Journal Entries
S.No	Particulars	Debit	Credit
1	Material Invemtory Dr	$4,00,000
	To Accounts Payable		$4,00,000
	(To record purchase of Materials)
2	WIP Inventory- Job no. 22 Dr	$60,000
	WIP Inventory- Job no. 23 Dr	$1,20,000
	WIP Inventory- Job no. 24 Dr	$1,80,000
	Manufacturing Overhead Dr	$10,000
	To Material Inventory		$3,70,000
	(To record Direct and indirect material used)
3	WIP Inventory- Job no. 22 Dr	$1,00,000
	WIP Inventory- Job no. 23 Dr	$2,00,000
	WIP Inventory- Job no. 24 Dr	$80,000
	Manufacturing Overhead Dr	$80,000
	To Payroll Summary		$4,60,000
	(To record facory labor cost incurred)
4	WIP Inventory- Job no. 22 Dr ($100*500)	$50,000
	WIP Inventory- Job no. 23 Dr ($100*1000)	$1,00,000
	WIP Inventory- Job no. 24 Dr ($100*300)	$30,000
	To Manufacturing Overhead		$1,80,000
	(To record application of overhead to production)
5	Finished Goods Inventory	$8,10,000
	To WIP Inventory- Job no. 22 (96000+60000+100000+50000)		$3,06,000
	To WIP Inventory- Job no. 23 (84000+120000+200000+100000)		$5,04,000
	(To record completion of job 22 and 23)
6	Accounts Receivable Dr	$12,00,000
	To Sales		$12,00,000
	(To record sales)
	Cost of Goods sold Dr	$4,46,000
	To Finished Goods Inventory ($306000+140000)		$4,46,000
	(To record cost of Goods sold)
7	Manufacturing Overhead Dr	$1,20,000
	To Accumulated Depreciation		$80,000
	To Accounts Payable		$40,000
	(To record Additional Overhead costs incurred)
8	Cost Of Goods sold Dr	$30,000
	To Manufacturing Overhead		$30,000
	(To dispose of under-applied overhead) [Overhead incurred - Overhead applied] [(10000+80000+120000) - 180000] = $30,000

Solution b:

Log cabin Homes, Inc.
Income statement
For the year ended December 31, 2014
Sales Revenue	$12,00,000
Less: Adjusted Cost of Goods sold ($446000+$30000)	$4,76,000
Gross Margin	$7,24,000
Less: Selling and administrative expenses	$1,00,000
Operating Income	$6,24,000