Question

( I need help with questions 8, 9, 10,11, 12)

CALIFORNIA COMPANY

…. Uses job order costing. At the start of the year, January 1, the company had work-in-process which consisted of the following jobs and costs:

	Job 1	Job 2	Job 3
Direct materials	$ 1,600	$ 2,000	$    850
Direct labor	1,900	1,200	900
Applied overhead	1,710	1,080	810

During the first quarter 3 more jobs were started – Job 4, Job 5 and Job 6. The following cost information is available for costs incurred during the month of January:

	Job 1	Job 2	Job 3	Job 4	Job 5	Job 6
Direct materials	1,800	1,735	6,550	4,500	1,300	600
Direct labor	1,000	1,400	4,200	1,800	800	860

During the quarter, jobs 1, 3, 4 and 6 were all completed. In addition, Jobs 3 and 6 were sold before the end of the quarter.

The company uses normal costing and closes under- and over-applied overhead directly to Cost of Goods Sold. There was no finished-goods inventory at the start of the period. Selling and administrative expenses totaled $3,986 for the quarter. Actual overhead for the quarter totaled $19,000. The company had no other non-operating gains or losses. Assume a tax rate of 35%.

Required:

1. The company applies overhead based on direct labor cost – compute the predetermined overhead rate.
2. Set up summary work in process T-accounts and job cost sheets for each job for the first quarter.
3. Post all first quarter costs to the summary work in process AND individual job cost sheets. When posting, make sure you do a total column for each cost element and ONLY POST TOTALS to the general ledger T accounts.
4. Calculate the ending balance for each job as of March 31.
5. Calculate the ending balance in work-in process as of March 31.
6. Calculate the cost of goods manufactured for the quarter.
7. Calculate the normal (unadjusted) cost of goods sold for the quarter. Calculate the adjusted cost of goods sold. WHY are they different? Why do we need both? What is the reason for the normal cost of goods sold?
8. During the quarter, did finished goods inventory increase or decrease AND by how much? WHY?
9. Compute the over/underapplied overhead for the quarter.
10. Assuming that the company prices its jobs at full cost plus 50%, calculate the sales revenue for the quarter.
11. Prepare an income statement for the first quarter.
12. WHY would the company use normal costing versus actual costing?

Answer 1

		Total Applied Overhead	$3,600	(1710+1080+810)
		Direct labor Cost	$4,000	(1900+1200+900)
		PREDETERMINED OVERHEAD RATE	$0.90	(3600/4000)
		WOTK IN PROCESS T ACCOUNTS
			DEBIT		CREDIT
		Beginning Balance	$12,050	(4450+4000+3600)
		Direct Materials	$16,485	Transferred to Finished Goods	$36,154	(8910+17090+7920+2234)
		Direct labor	$10,060
		Aplied Overhead	$9,054
		Ending Balance Balance	$11,495
		JOB COST SHEET
			JOB1	JOB2	JOB3	JOB4	JOB5	JOB6	TOTAL
	a	Beginning Direct Materials	$1,600	$2,000	$850				$4,450
	b	Direct materials cost incurred	$1,800	$1,735	$6,550	$4,500	$1,300	$600	$16,485
	C=a+b	Total Direct materials Cost	$3,400	$3,735	$7,400	$4,500	$1,300	$600	$20,935
	d	Beginning Direct labor	$1,900	$1,200	$900				$4,000
	e	Direct Labor cost incurred	$1,000	$1,400	$4,200	$1,800	$800	$860	$10,060
	F=d+e	Total Direct Labor Cost Cost	$2,900	$2,600	$5,100	$1,800	$800	$860	$14,060
	g	Beginning Applied overhead	$1,710	$1,080	$810				$3,600
	h=0.9*e	Applied Overhead during the quarter	$900	$1,260	$3,780	$1,620	$720	$774	$9,054
	I=g+h	Total Applied Overhead Cost	$2,610	$2,340	$4,590	$1,620	$720	$774	$12,654
	J=C+F+I	Total Manufacturing Cost(Ending Balance)	$8,910	$8,675	$17,090	$7,920	$2,820	$2,234	$47,649
		Cost of goods manufactured	$36,154
		Unadjusted Cost of Goods Sold	$19,324	(Job3:17090+Job6:2234)
		Applied Overhead during the quarter	$9,054
		Actual Overhead Incurred in the qtr	$19,000
		Underappled Overhead=19000-9054	$9,946
		Adjusted Cost of goods sold	$29,270	(19324+9946)
		Sales Revenue=29270*1.5	$43,905
		INCOME STATEMENT
		Sales Revenue	$43,905
		Cost of goods sold	$29,270
		Gross Profit	$14,635
		Less:Selling & admininstration expenses	$3,986
		Net Income	$10,649