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	$1,000.00
		Table Leg	$ 150.00
		Drawer	$ 300.00
	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	$ 2,500.00
	b.	Rent for the factory per month	$500.00
	c.	Depreciation of factory equipment per month	$600.00
		Total Estimated manufacturing overhead	$ 3,600.00
	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, $10,000.
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 $3,000.
	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 $500.
17-Dec	Advertising costs incurred but not paid for the month was $1,200.
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 $15,000 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. 87). (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= $3,520, Net operating income=$6,730
	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 Determination of the predetermined Manufacturing overhead rate :-
	Predetermined Manufacturing Overhead Rate =	Total estimated manufacturing overhead cost	=	$3,600	=	$300	per direct labour hour
		Total estimated direct labor hours		12
Step 2 The first order you received was to manufacture a table using a table top and four legs. This is your Job #1 :-
Job #1 Cost Sheet
						Total
	Direct Materials
	Table Top	1,000
	Table Leg	150				1,150
	Direct Labor	2 hours* 3 employees= 6 hours *$20 per hour				120
	Manufacturing Overhead	$300* 6 hours				1,800
	Total					3,070
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. :-
Job #2 Cost Sheet
						Total
	Direct Materials
	Table Top	1,000
	Table Leg	150
	Drawer	300				1,450
	Direct Labor	1 hours* 3 employees= 3 hours *$20 per hour				60
	Manufacturing Overhead	$300* 3 hours				900
	Total					2,410
Step 4 Journal entries
Sr. No.	Particulars		L.F	Debit		Credit
1-Dec	Raw Materials A/c		Dr.	$10,000
	To Accounts payable A/c					$10,000
	(Being Raw materials purchased on account)
5-Dec	Work in Process A/c		Dr.	$     1,150
	To Raw Materials A/c					$1,150
	(Being Raw materials issued for use in Job #1)
10-Dec	Work in Process A/c      (2 hours* 3 employees*$20 per hour)		Dr.	120
	Manufacturing Overheads A/c		Dr.	$3,000
	Salaries and Wages Expense A/c		Dr.	$2,000
	To Salaries and wages payable A/c					5,120
	(Being employee cost incurred)
15-Dec	Work in Process A/c		Dr.	$1,450
	To Raw Materials A/c					$1,450
	(Being Raw materials issued for use in Job #2)
16-Dec	Manufacturing Overheads A/c		Dr.	$500
	To Rent Payable A/c					$500
	(Being Rent for the factory building incurred )
17-Dec	Advertising Expenses A/c		Dr.	$1,200
	To Advertising Expenses Payable A/c					$1,200
	(Being Advertising Expenses incurred)
20-Dec	Manufacturing Overheads A/c		Dr.	$150
	Depreciation expense A/c		Dr.	$600
	To Accumulated depreciation A/c					$750
	(Being depreciation charged on factory and office equipments)
22-Dec	Work in Process A/c                                                                       Dr.			1,800
	To Manufacturing Overheads A/c					$1,800
	(Being Manufacturing Overheads charged to job #1 @ $300 per direct labour) (300 * 6)
26-Dec	Finished Goods A/c                                                                        Dr.			3,070
	To Work in Process A/c					$3,070
	(Being job #1 completed)
28-Dec	Cost of goods sold A/c                                                                   Dr.			$3,070
	To Finished Goods A/c					$3,070
	(Being goods sold transferred)
28-Dec	Account Receivable A/c                                                                                        Dr.			$15,000
	To Sales Revenue A/c					$15,000
	(Being goods sold on account)
31-Dec	Work in Process A/c     (1 hour* 3 employees*$20 per hour)    Dr.			$60
	To Salaries and wages payable A/c					$60
	(Being direct labor cost incurred)
31-Dec	Work in Process A/c                                                                     Dr.			$900
	To Manufacturing Overheads A/c					$900
	(Being Manufacturing Overheads charged to job #2 @ $300 per direct labour) (300 * 3)
31-Dec	Cost of goods sold A/c                                                                   Dr.			$        950
	To Manufacturing Overheads A/c					$950
	(Being underapplied overheads charged)

Step 5 T-Accounts Raw materials Alc To Balance bd By Work in Process Alc $ 2,600 By Balance dd 7.400 To Accounts payable Alc 10,000 $ $10,000 10,000 Work In Process Alc 3,070 To Balance bld $ By Finished Goods Alc To Raw Materials Alc $ 2,600 By Balance dd 2.410 To Salaries and wages payable Alc $ 180 To Manufacturing Overheads Alc 2,700 $ 5,480 5,480 Finished Goods Alc To Balance bd $ By Cost of goods sold Alc 3,070 By Balance dd To ss A $ 3,070 n $ 3,070 3,070 Manufacturing Overheads Alc To Salaries and wages payable Alc By Work in Process Alc $ 3,000 2,700 To Rent Payable Alc 500 By Cost of Goods Sold Alc 950 To Accumulated depreciation Alc $ 150 By Balance cd $ 3,650 3,650 A A o

Cost of Goods Sold Alc To Finished Goods Alc 3,070 By Balance dd 4,020 To Manufacturing Overheads Alc $ 950 $ 4,020 $ 4.020 Accounts Receivables Alc To Sales Revenue Alc 15.000 By Balance dd 15.000 $15,000 $ 15,000 Sales Revenue Alc To Balance dd 15,000 By Accounts Receivables Alc 15,000 $15,000 $ 15,000 Accumulated depreciation Alc To Balance dd 750 By Manufacturing Overheads Alc $ 150 By Selling & Administration Overheads Alc 600 750 $ 750 Rent Payable Alc To Balance dd 500 By Manufacturing Overheads Alc $ 500 $ 500 $ 500 Advertising Expenses Payable Alc To Balance cd 1,200 Advertising Expenses Alc $ 1,200 $ 1,200 $ 1,200

Accounts Payable Alc To Balance dd $ 10,000 By Raw Materials Alc $ 10,000 10,000 10,000 Salaries and wages payable Alc To Balance dd $ 5,180 By Work in Process Alc 180 By Manufacturing Overheads Alc By Salaries and Wages Expense $ 3.000 $ 2,000 $ 5,180 5,180 Salaries and wages Expenses Alc To Salaries and wages payable Alc 2,000 By Balance dd 2,000 $2,000 2,000 Advertising Expenses Alc To Advertising Expenses Payable Ac 1,200 By Balance dd 1,200 $ 1,200 1,200 Depreciation Expense Alc To Accumulated depreciation Alc 600 By Balance dd $ 600 $ 600 600

Trial Balance Credit Debit Accounts Receivables 15,000 Raw materials $ 7,400 Work in process 2,410 Finished goods Accumulated depreciation Accounts payable Rent payable Advertising Expenses Payable $ 750 10.000 500 1,200 Salaries and wages payable 5,180 Sales revenue, 15,000 Manufacturing overhead Cost of qoods sold Salaries and wages expense 4,020 $ 2,000 Advertising expenses $ 1,200 Depreciation expense 600 $ Total 32,630 32,630 Manufacturing Overheads are underapplied for the month Actual manufacturing overheads incurred 3,650 Applied manufacturing overheads (1800+900) 2,700 Underapplied overheads 950 Step 6 Schedule of Cost of Goods Manufactured:- Job 1 (Finished) Job 12 (Unfinished) Direct material costs $ 1,150 1,450 Direct labor costs 120 $ 60 Manufacturing Overheads 1,800 $ 900 C Cost of Unfinished jobs 2,410 Cost of Goods manufactured 3,070 Schedule of Cost of Goods sold :- Cost of Goods manufactured 3,070 Underapplied overheads charged 950 Cost of Goods sold 4.020

Step 7 Income Statement for the month Sales $ 15,000 Less Cost of Goods sold $ 4.020 Gross margin $ 10.980 Less Salaries and wages Expenses 2,000 Advertising Expenses Depreciation Expense Less 1,200 Less 600 $ Net operating income 7,180 Step 8 Additional Questions What is the ending balance for raw materials? 7,400 2 What is the ending balance for work in process? 2.410 3 What is the ending balance for finished goods? $ 4 What is the actual manufacturing overhead cost incurred during December before adjustment? ,650 5 What is the total applied manufacturing overhead cost during December before adjustment? $ 2,700 What is the unadjusted cost of goods sold? 3,070 7 Was the manufacturing overhead for the month of December overappliedunderapplied? Underapplied What is the amount of Manufacturing overhead overappliedunderapplied? What is the adjusted cost of goods sold? What is gross margin? 8 $ 950 $ 4,020 10 10,980 11 What is the total prime cost for Job#1? (1150+ 120) What is the total conversion cost for job #1? (120+1800] $ 1,270 12 1,920 13 What is the total product cost for job# 1? $ 3,070 14 What was the period cost incurred for the month of December? (3000+500) What is the total variable cost incurred for Job #1 assume that all selling and administrative cost and all manufacturing What is the contribution margin for Job #1(assume that all selling and administrative cost and all manufacturing What would be the actual (not applied) total fixed manufacturing overhead cost incurred for the company for the month if $ 3,500 15 $ 1,270 16 13,730 17 3,650

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