Question

Step 1	You work for Thunderduck Custom Tables Inc.  This is the first month of operations. The company designs and manufactures specialty tables. Each table is specially customized for the customer. This month, you have been asked to develop and manufacture two new tables for customers.  You will design and build the tables. This is a no nail, no screw, and no glue manufacturing ( no indirect materials used). You will be keeping track of the costs incurred to manufacture the tables using Job #1 Cost Sheet and Job #2 Cost Sheet.
	The cost of the direct materials that can be used to manufacture the table are as follows. These cost are on a per unit basis.
		Table Top	$2,600.00
		Table Leg	$950.00
		Drawer	$460.00
	The company uses a job order costing system and applies manufacturing overhead to jobs based on direct labor hours.
	The company estimates that there will be 12 direct labor hours worked during the month.
	The estimated manufacturing overhead cost for the month is:
	a.	Factory supervisor salary per month	$3,000.00
	b.	Rent for the factory per month	$1,200.00
	c.	Depreciation of factory equipment per month	$600.00
		Total Estimated manufacturing overhead	$4,800.00
	What is the predetermined manufacturing overhead rate?
Step 2	The first order you received was to manufacture a table using a table top and four legs. This is your Job #1.
Step 3	The customer that has ordered Job #2, wants a table that is the same as Job #1, but wants to also add a drawer to the table.
Step  4	The following is a list of transactions that need to be recorded for the company for activity in the month of December. Record those in the "General Journal" tab of the excel file using the proper format. Please use the following accounts: Accounts Receivables, Raw materials, Work in process, Finished goods, Accumulated depreciation, Accounts payable, Salaries and wages payable, Sales revenue, Manufacturing overhead, Cost of goods sold, Salaries and wages expense, Advertising expenses, and Depreciation expense.
1-Dec	Raw Materials purchased on account, $26,000.
5-Dec	All Raw Materials needed for Job #1 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #1 Cost Sheet)
10-Dec	The following employee costs were incurred but not paid during the month:
	There are three assembly employees that spend 2 hours each, $20 per hour to make the table for Job #1. (After you journalize this entry please enter the information into Job #1 Cost Sheet)
	Salary for supervisor of the factory $3,500.
	Administrative Salary $2,000.
15-Dec	All Raw Materials needed for Job #2 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
16-Dec	Rent for the month of December for the factory building incurred but not paid $1,200.
17-Dec	Advertising costs incurred but not paid for the month was $1,400.
20-Dec	Depreciation for the month of December was recorded on equipment was $750 ($150 for equipment used in the factory and the remainder for equipment used in selling and administrative activities).
22-Dec	Manufacturing overhead cost was applied based on direct labor hours to Job #1 based on the POHR determined on the "Job Cost Sheet".  (After you journalize this entry please enter the information into Job #1 Cost Sheet)
26-Dec	Job #1 was completed and transferred to Finished Goods during the month.
28-Dec	The completed table from Job #1 was sold on account to the customer for $31,000 during the month.  (Hint:  Make sure to account for the cost of the table that was sold using the cost from the job cost sheet.)
31-Dec	Direct labor cost incurred but not paid for three employees to start manufacturing Job #2.  The employees only worked one hour each, three hours total, $20 per hour during the month and they did not complete their work on the job. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
31-Dec	Manufacturing overhead cost was applied based on direct labor hours to Job #2 based on the POHR.  Only three direct labor hours were worked on Job #2 during the month. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
31-Dec	Any underapplied or overapplied overhead for the month was closed out to Cost of Goods Sold.
Step 5	Post the journal entries that you recorded on the "General Journal" tab to the "T-accounts" tab.  This is the company's first month of business, so there will not be any beginning balances. Compute the balance for each T-account after all of the entries have been posted.
Step 6	Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold on the "Schedule of COGM and COGS" tab for Job #1 and Job #2 that were worked on during the month by the company.  Make sure to follow the format noted in your book (pg. 109). (Hint: This is the company's first month of operations and therefore the beginning balances will be zero.)
Step 7	Prepare an Income Statement for the month using the Traditional Format on the "Income Statement" tab.
Step 8	Answer the additional questions below
	Check Figure: Cost of Goods Manufactured= $8,920, Net operating income=$16,830
	What is the ending balance for raw materials?
	What is the ending balance for work in process?
	What is the ending balance for finished goods?
	What is the actual manufacturing overhead cost incurred during December before adjustment?
	What is the total applied manufacturing overhead cost during December before adjustment?
	What is the unadjusted cost of goods sold?
	Was the manufacturing overhead for the month of December overapplied/underapplied ?
	What is the amount of Manufacturing overhead overapplied/underapplied?
	What is the adjusted cost of goods sold?
	What is gross margin?
	What is the total prime cost for Job#1?
	What is the total conversion cost for job #1?
	What is the total product cost for job#1?
	What was the period cost incurred for the month of December?
	What is the total variable cost incurred for Job #1(assume that all selling and administrative cost and all manufacturing overhead costs are fixed.)?
	What is the contribution margin for Job #1 (assume that all selling and administrative cost and all manufacturing overhead costs are fixed.)?
	What would be the actual (not applied) total fixed manufacturing overhead cost incurred for the company for the month if the order in Job #1 is for five tables instead of one table assuming this cost is with in the relevant range?

Answer 1

Step:1 Predetermined manufacturing overhead rate=Total estimated manufacturing overhead/Total estimated direct labor hours=4800/12=$400 per direct labor hour

Step:4			General Journal
	Date	Description			Debit	Credit
	Dec 1.	Raw materials			26000
		Accounts payable				26000
		(Raw material purchased on account)
	Dec 5.	Work in process		2600+(4*950)	6400
		Raw materials				6400
		(Materials applied to Job #1)
	Dec 10.	Work in process		(3*2*20)	120
		Manufacturing overhead			3500
		Salaries and Wages expense			2000
		Salaries and Wages payable				5620
		(Employee costs incurred)
	Dec 15.	Work in process		2600+(4*950)+460	6860
		Raw materials				6860
		(Materials applied to Job #2)
	Dec 16.	Manufacturing overhead			1200
		Accounts payable				1200
		(Rent for the factory building)
	Dec 17.	Advertising expenses			1400
		Accounts payable				1400
		(Advertising cost incurred)
	Dec 20.	Manufacturing overhead			150
		Depreciation expense			600
		Accumulated depreciation				750
		(Depreciation recorded)
	Dec 22.	Work in process		(3*2*400)	2400
		Manufacturing overhead				2400
		(Manufacturing overhead cost applied)
	Dec 26.	Finished goods			8920
		Work in process				8920
		(Check Job cost sheet of Job #1)
		(Job #1 completed and transferred to
		Finished goods)
	Dec 28.	Accounts receivables			31000
		Sales revenue				31000
		(Job #1 sold on account)
		Cost of goods sold			8920
		Finished goods				8920
		(Cost of goods sold accounted)
	Dec 31.	Work in process		(3*1*20)	60
		Salaries and Wages payable				60
		(Direct labor cost incurred)
	Dec 31.	Work in process		(3*1*400)	1200
		Manufacturing overhead				1200
		(Manufacturing overhead cost applied)
	Dec 31.	Cost of goods sold		(See note below)	1250
		Manufacturing overhead				1250
		(Under-applied overhead adjusted)

Н II 3500 Note: Under applied or over applied overhead: Total manufacturing overhead incurred: Salary supervisor for the factory Rent for factory building Depreciation on factory equipment Total manufacturing overhead incurred 1200 150 4850 2400 Total manufacturing overhead applied: Job #1 Job #2 Total manufacturing overhead applied 1200 3600 Since the manufacturing overhead applied is less than the cost of manufacturing overhead incurred, Under application of overhead has incurred. Under-applied overhead=4850-3600=$ 1250 Job cost sheet Job Number:1 Item:Table top and Table Leg Date initiated: Date completed: Dec 1. Dec 26. Direct labor Direct materials Amount Hours Rate Manufacturing overhead Amount Hours Rate Amount 120 6 400 2400 6400 6 20

2 Cost summary Direct materials Direct labor Manufacturing overhead Total product cost 6400 120 2400 8920 Job cost sheet Job Number: Item:Table top, Table Leg and Drawer Date initiated: Date completed: Dec 1. NA Direct materials Direct labor Hours Rate Amount 6860 Manufacturing overhead Amount Hours Rate Amount 60 3 400 1200 3 20 6860 Cost summary Direct materials Direct labor Manufacturing overhead Total product cost 60 1200 8120

Step:5 Dec 28. T-accounts Accounts receivables 31000 31000 31000 Dec 1. Raw materials 26000 6400 Dec 5. 6860 Dec 15. 26000 13260 12740 Bal. Bal. Work in process 6400 8920 Dec 26. Dec 26. Finished goods 8920 8920 Dec 28. 8920 8920 Dec 5. Dec 10. Dec 15. Dec 22. 120 6860 2400 Bal. 0 Dec 31. 60 Dec 31. 1200 8920 17040 8120 Bal. Accumulated depreciation 750 Dec 20. Accounts payable 26000 Dec 1. 1200 Dec 16. 0 750 750 Bal. 1400 Dec 17. 0 28600 28600 Bal.

Salaries and wages payable 5620 Dec 10. 60 Dec 31. 0 5680 5680 Bal. Sales revenue 31000 Dec 28. 0 31000 31000 Bal. Dec 10. Dec 16. Dec 20. Manufacturing overhead 3500 2400 Dec 22. 1200 1200 Dec 31. 150 1250 Dec 31. 4850 4850 Dec 28. Dec 31. Cost of goods sold 8920 1250 10170 10170 0 Bal. Salaries and wages expense 2000 Advertising expense 1400 Dec 10. Dec 17. 2000 0 1400 0 Bal. 2000 Bal. 1400 Depreciation expense 600 Dec 20. 600 0 Bal. 600

Step:6 Schedule of cost of goods manufactured $ $ Direct materials used: Beginning balance of raw materials Add: Materials purchased 0 26000 260001 12740 13260 180 3600 170401 Less: Ending balance of raw materials Direct materials used Direct labor cost (150+75) Manufacturing overhead applied (2100+1050) Total manufacturing cost Add: Beginning work in process Total work in process Less: Ending work in process Cost of goods manufactured Schedule of cost of goods sold 0 17040 8120 8920 $ 8920 Cost of goods manufactured Add: Beginning balance of finished goods 0 8920 0 8920 Less: Ending balance of finished goods Cost of goods sold (Unadjusted) Add: Under-applied overhead Cost of goods sold (Adjusted) 1250 10170

Step:7 Income statement $ 31000 10170 20830 Sales revenue Less: Cost of goods sold Gross margin Less: operating expenses Salaries and wages expense Advertising expense Depreciation expense Total operating expenses Net income 2000 1400 600 4000 16830 Step:8 Ending balance of raw materials=$ 12740 Ending balance of work in process=$ 8120 Ending balance of finished goods=0 Actual manufacturing overhead cost incurred=$ 4850 (Refer note below journal entries) Total manufacturing overhead applied=$ 3600 Unadjusted cost of goods sold=$ 8920 Manufacturing overhead was under-applied Under-applied overhead=$ 1250 (Refer note below journal entries) Adjusted cost of goods sold=$ 10170 Gross margin=$ 20830 Total prime cost for Job #1=Direct material cost+Direct labor cost=6400+120=$ 6520

Total prime cost for Job #1=Direct material cost+Direct labor cost=6400+120=$ 6520 Total conversion cost for Job #1=Direct labor cost+Manufacturing overhead applied=120+2400=$ 2520 Total product cost for Job #1=Direct material cost+Direct labor cost+Manufacturing overhead applied=6400+120+2400=$ 8920 Total period cost incurred: $ Salaries and wages expense 2000 Advertising expense 1400 Depreciation expense 600 Total 4000 Total variable cost incurred for Job #1=Direct material cost+Direct labor cost=6400+120=$ 6520 Contribution margin for Job #1=Sales revenue-Total variable cost=31000-6520=$ 24480 Since manufacturing overheads are fixed. It will not change according to the number of table. Hence, Actual manufacturing overhead will remain at $ 4850