Question

Mastery Problem: Job Order Costing

Purl of Great Price Company

Maria Young is the sole stockholder of Purl of Great Price Company (POGP Company), which produces high-end knitted sweaters and sweater vests for sale to retail outlets. The company started in January of the current year, and employs three knitters (each of whom work 40 hours per week) and one office manager/knitting supervisor (this employee works 20 hours per week as office manager, and 20 hours per week as knitting supervisor). All wages are paid in cash at the end of each month.

Each knitter has a knitting machine that is used about 2/3 of the knitter’s time, the rest of the knitter’s time being involved in hand knitting and piecing together the garments. The company also has a packaging machine used to wrap the garments in plastic for shipping, which is operated by the office manager/knitting supervisor approximately 5 hours per week.

The knitting machines were purchased on January 1 of the current year, and cost $2,400 each, with an anticipated useful life of 10 years and no salvage value. The packaging machine was purchased on the same date and cost $4,800, with the same anticipated useful life and salvage value.

Nov. 30 Trial Balance

POGP Company Trial Balance November 30, 20Y8
Account Title	Debit	Credit
Cash	20,000
Accounts Receivable	1,000
Supplies	200
Materials	5,000
Work in Process	5,404
Equipment	12,000
Accumulated Depreciation-Equipment		825
Accounts Payable		150
Common Stock		10,000
Retained Earnings		12,000
Dividends	18,096
Sales		307,500
Cost of Goods Sold	255,040
Factory Overhead		15
Wages Expense	13,750
	330,490	330,490

Predetermined Factory Overhead Rate

Since the company is more reliant on labor than machines, Maria decides to use direct labor hours (DLH) as the activity base for her predetermined factory overhead rate, rather than machine hours (MH).

Estimated Selected Amounts for the Year
Estimated depreciation on equipment	$1,200
Estimated total Office Manager/Knitting Supervisor wages	$36,000
Estimated office utilities	$3,000
Estimated factory utilities	$4,800
Estimated factory rent	$24,000

Activity Base Data
Estimated number of DLH for the year	6,250
Estimated number of MH for the year	4,375

Compute the predetermined factory overhead rate for the current year.

Feedback

Materials Requisition			Date: Dec. 10
Req. No. 12255	Job No. 83
Description	Qty. Issued	Unit Price	Amount
Yarn type B	700 skeins	$5	$3,500
		Total issued	$3,500

Time Ticket	No. 1255	Name:	Susan Blake
Work Description:	Knitting/piecing
Dates	Job No.	Hours Worked	Unit Price	Amount
12/01-12/15	62	65	$15	$975
12/16-12/31	83	103	15	1,545
			Total Cost	$2,520

Time Ticket	No. 2274	Name:	Josh Porter
Work Description:	Knitting/piecing
Dates	Job No.	Hours Worked	Unit Price	Amount
12/01-12/15	62	75	$15	$1,125
12/16-12/31	83	88	15	1,320
			Total Cost	$2,445

Time Ticket	No. 3923	Name:	Mary Jones
Work Description:	Knitting/piecing
Dates	Job No.	Hours Worked	Unit Price	Amount
12/01-12/15	62	60	$15	$900
12/16-12/31	83	109	15	1,635
			Total Cost	$2,535

Job Cost Sheets

On December 10, POGP Company receives an order for 200 sweater vests and assigns Job 83 to the order. Review the Materials Requisition table to add the materials to the Job Cost Sheet for Job 83.

On December 15, review the Time Ticket tables to add the appropriate amount of direct labor and factory overhead costs to the Job Cost Sheet for Job 62 for the period December 1 through December 15.

On December 31, the last work day of the year for the knitters, review Time Ticket tables to add the appropriate amount of direct labor and factory overhead costs to the Job Cost Sheet for Job 83 for the period December 16 through December 31.

If there is no amount or an amount is zero, enter "0". If required, round your answers to the nearest cent.

Job 62	100 units:	Sweaters
	Direct Materials	Direct Labor	Factory Overhead	Total
Balance Dec. 1	$5,000	$300	$104	$5,404
Dec. 15
Total Cost	$	$	$	$
			Unit Cost	$

Job 83	200 units:	Sweater vests
	Direct Materials	Direct Labor	Factory Overhead	Total Job Cost
Balance Dec. 1	$0	$0	$0	$0
Dec. 10
Dec. 31
Total Cost	$	$	$	$

Feedback

Recall that the factory overhead is applied for this company using direct labor hours (DLH).

Journal

On December 10, POGP Company receives an order for 200 sweater vests and assigns Job 83 to the order. Review the Materials Requisition table to journalize the entry to record the addition of the materials to Work in Process. If an amount box does not require an entry, leave it blank.

Dec. 10

Feedback

Think about the flow of costs incurred to do a job and the accounts affected by sales to customers.

On December 15, review the Time Ticket tables to journalize the entry to record the addition of direct labor to Work in Process for the period December 1 through December 15. If an amount box does not require an entry, leave it blank.

Dec. 15

Feedback

Incorrect

On December 15, review the Time Ticket tables to journalize the entry to record the addition of factory overhead to Work in Process for the period December 1 through December 15. If an amount box does not require an entry, leave it blank.

Dec. 15

Feedback

Incorrect

On December 21, Job 62 is completed. Review the Job Cost Sheets and your journal entries. Journalize the entry to move the associated costs to the finished goods account. If an amount box does not require an entry, leave it blank.

Dec. 21

Feedback

Incorrect

On December 22, 75 of the 100 sweaters from Job 62 are sold on account for $125 each. Journalize the following transactions:

a. The entry to record the sale.

b. The entry to record the transfer of costs from Finished Goods to Cost of Goods Sold.

If an amount box does not require an entry, leave it blank.

Dec. 22
Dec. 22

Feedback

Incorrect

On December 31, the last work day of the year for the knitters, review the Time Ticket tables to journalize the entry to record the addition of direct labor to Work in Process for the period December 16 through December 31. If an amount box does not require an entry, leave it blank.

Dec. 31

Feedback

Incorrect

On December 31, the last work day of the year for the knitters, review the Time Ticket tables to journalize the entry to record the addition of factory overhead to Work in Process for the period December 16 through December 31. If an amount box does not require an entry, leave it blank.

Dec. 31

Feedback

Incorrect

On December 31, journalize the following transactions. Note that expenses (b), (c), and (d) were paid in cash.

a. One month’s depreciation on equipment

b. One month’s payroll for all employees

c. One month’s rent of $2,000

d. One month’s factory utilities of $1,275

If an amount box does not require an entry, leave it blank.

Dec. 31

Feedback

Incorrect

On December 31, prepare the journal entry to dispose of the balance in the factory overhead account. If an amount box does not require an entry, leave it blank.

Dec. 31

Feedback

Incorrect

Final Question

What are the balances in the following accounts as of December 31? If an amount is zero, enter "0".

Materials	$
Work in Process	$
Finished Goods	$
Factory Overhead	$
Cost of Goods Sold	$

Answer 1

Predetermined Overhead rate = ($1200+(36000 x 50%) +4800+24000) / 6250 = $7.68 per DLH

Job 62
	Direct material	Direct labor	Factory Overhead	Total
Balance Dec 1	$         5,000	$             300	$             104	$         5,404
Dec. 15	$                -	$         3,000	$         1,536	$         4,536
Total Cost	$         5,000	$         3,300	$         1,640	$         9,940
Unit Cost				$         99.40
Job 83
	Direct material	Direct labor	Factory Overhead	Total
Balance Dec 1	$                -	$                -	$                -	$                -
Dec. 10	$         3,500			$         3,500
Dec. 31		$         4,500	$         2,304	$         6,804
Total Cost	$         3,500	$         4,500	$         2,304	$       10,304

Date	Account Titles	Debit	Credit
10-Dec	Work in Process	$            3,500
	Materials		$         3,500
15-Dec	Work in Process	$            3,000
	Wages Payable		$         3,000
15-Dec	Work in Process	$            1,536
	Factory Overhead		$         1,536
21-Dec	Finished Goods	$            9,460
	Work in Process		$         9,460
22-Dec	Accounts Receivable	$            9,375
	Sales		$         9,375
22-Dec	Cost of Goods Sold	$            7,455
	Finished Goods		$         7,455
31-Dec	Work in Process	$            4,500
	Wages Payable		$         4,500
31-Dec	Work in Process	$            2,304
	Factory Overhead		$         2,304
31-Dec	Factory Overhead	$            4,875
	Wages Expense	$            1,500
	Wages Payable	$            7,500
	Cash		$       13,775
	Accumulated Depreciation		$             100

Overhead applied = $1536+2304 = $3840
Actual Factory Overhead = $4875

Underapplied overhead = $4875-3840 = $1035

Date	Account Titles	Debit	Credit
31-Dec	Cost of Goods Sold	$               1020
	Factory Overhead		$            1020

Work in Process = $10304
Finished Goods = 25 x $99.40 = $2485
Factory Overhead = 0
Cost of Goods Sold = $255040+7455-1020 = $261475

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