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	$6,000
Estimated factory utilities	$4,800
Estimated factory rent	$24,000

Activity Base Data
Estimated number of DLH for the year	5,000
Estimated number of MH for the year	3,500

Compute the predetermined factory overhead rate for the current year.

Materials Requisition			Date: Dec. 10
Req. No. 12255	Job No. 83
Description	Qty. Issued	Unit Price	Amount
Yarn type B	600 skeins	$5	$3,000
		Total issued	$3,000

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	$20	$1,300
12/16-12/31	83	103	20	2,060
			Total Cost	$3,360

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	$20	$1,500
12/16-12/31	83	88	20	1,760
			Total Cost	$3,260

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	$20	$1,200
12/16-12/31	83	109	20	2,180
			Total Cost	$3,380

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	$	$	$	$

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

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

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

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

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

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

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

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

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

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=Estimated manufacturing overhead/Estimated number of DLH for the year

Estimated manufacturing overhead:

Depreciation	1,200
Total wages	36,000
Office utilities	6,000
Factory utilities	4,800
Factory rent	24,000
Total	72000

Predetermined overhead rate=72000/5000=$ 14.4 per DLH

Job 62 100 units: Sweaters

	Direct materials	Direct labor	Factory overhead	Total
Balance Dec. 1	5000	300	104	5404
Dec. 15		4000 (1300+1500+1200)	2880 (65+75+60)*14.4	6880
Total cost	5000	4300	2984	12284

Unit cost=(12284/100)= 122.84

Job 83 200 units: Sweater vests

	Direct materials	Direct labor	Factory overhead	Total
Balance Dec. 1	0	0	0	0
Dec. 15	3000			3000
Dec. 31		6000 (2060+1760+2180)	4320 (103+88+109)*14.4	10320
Total cost	3000	6000	4320	13320

Unit cost= 13320/200= 66.6

Date	Account Titles	Debit	Credit
		$	$
Dec 10	Work in Process Inventory	3,000
	Raw Materials Inventory		3,000
Dec 15	Work in Process Inventory	4,000
	Factory Wages Payable		4,000
Dec 15	Work in Process Inventory	2,880
	Factory Overhead ( 200 DLH x $ 7.20)		2,880
Dec 21	Finished Goods Inventory	12,284
	Work in Process Inventory		12,284
Dec 22. a.	Accounts Receivable(75*125)	9,375
	Sales Revenue		9,375
Dec 22 b.	Cost of Goods Sol(75*122.84)	9,213
	Finished Goods Inventory		9,213
Dec 31	Work in Process Inventory	6,000
	Factory Wages Payable		6,000
Dec 31	Work in Process Inventory	4,320
	Factory Overhead		4,320
Dec 31	Factory overhead (note 1)	3975
	Salaries payable	1600
	Wages payable	10000
	Cash		15475
	Accumulated depreciation-Equipment		100
Dec. 31	Factory overhead (Note:2)	2825
	Cost of goods sold		2825
Note:1
Depreciation:
Cost of equipment=$ 12000 (Refer trial balance)
Depreciation=(Cost-Residual value)/Useful life=(12000-0)/10=$ 1200
Depreciation for 1 month=1200*(1/12)=$ 100
One month payroll for all employees
Factory overhead Number Hours per week Rate per hour Total labor cost A B c a*b*c*4 Knitting supervisor 1 20 20 1600 To factory overhead Office manager 1 20 20 1600 To selling and admin expense On packaging machine 1 5 20 400 To factory overhead 3200
Direct labor =Total labor cost of all time tickets=3360+3260+3380=$ 10000
Amount to be transferred to factory overhead:
					$
Depreciation					100
Wages				(1600+400)	2000
Rent					1000
Utilities					1275
Total					4375
Note:2
Factory overhead balance=Factory overhead applied-Factory overhead incurred
Factory overhead applied=2880+4320=$ 7200
Factory overhead incurred=$ 4375
Factory overhead balance=7200-4375=$ 2825 MATERIAL =5000-3000=2000 WIP=5404+3000+10000+7200-12284=13320 FINISHED GOODS=12284-8583=3701 FACTORY OVERHEAD =0 COST OF GOODS SOLD=19021