Question

Exercise 16-8

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Enos Printing Corp. uses a job order cost system. The following data summarize the operations related to the first quarter?s production.

1.		Materials purchased on account $192,000, and factory wages incurred $87,300.
2.		Materials requisitioned and factory labor used by job:

Job Number		Materials		Factory Labor
A20		$35,240		$18,000
A21		42,920		22,000
A22		36,100		15,000
A23		39,270		25,000
General factory use		4,470		7,300
		$158,000		$87,300

3.		Manufacturing overhead costs incurred on account $49,500.
4.		Depreciation on factory equipment $14,550.
5.		Depreciation on the company?s office building was $14,300.
6.		Manufacturing overhead rate is 90% of direct labor cost.
7.		Jobs completed during the quarter: A20, A21, and A23.

Prepare entries to record the operations summarized above. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)	Raw Materials Inventory	192,000
	Accounts Payable		192,000
	(To record materials purchases)
	Factory Labor	87,300
	Factory Wages Payable		87,300
	(To record factory wages)
(2)	Work in Process Inventory	153,530
	Manufacturing Overhead	4,470
	Raw Materials Inventory		158,000
	(To record materials put into production)
	Work in Process Inventory	80,000
	Manufacturing Overhead	7,300
	Factory Labor		87,300
	(To record labor put into production)
(3)	Manufacturing Overhead	49,500
	Accounts Payable		49,500
(4)	Manufacturing Overhead	14,550
	Accumulated Depreciation-Equipment		14,550
(5)	Depreciation Expense	14,300
	Accumulated Depreciation-Buildings		14,300
(6)	Work in Process Inventory	72,000
	Manufacturing Overhead		72,000
(7)	Finished Goods Inventory
	Work in Process Inventory

Answer 1

Concept and reason

Production: Production is a process or an activity that converts raw materials into finished goods. Raw materials started during the production may be processed in the same year or next year. Output of the production activity is termed as finished goods.

Raw materials: Raw materials are the inputs used in the production activity to produce a particular product. These are reported as a part of the current assets section in the balance sheet at the end of a particular period.

Work-in-process: Work-in-process is the inventory existing at the end of a particular period which is put in to the process and which is still under processing (unfished). These are processed in the next period to convert them into finished goods. Raw materials that are processed partially are known as work-in-process. Work-in-process is reported as a part of the current assets section in the balance sheet after the raw materials.

Finished goods: Finished goods are the outputs of the production activity. Raw materials are processed to convert them to finished goods. These are reported as a part of the current assets section in the balance sheet after the raw materials and work-in-process.

Manufacturing overhead: Manufacturing overhead is the indirect expense incurred in addition to the direct expenses during the production activity. Manufacturing overhead is also known as factory overhead. This cost is not directly traceable for a particular product. These are allocated to the product basing on the predetermined overhead rate.

Predetermined overhead rate: The rate at which the overheads are allocated to each unit of a product is called overhead recovery rate. The direct and traceable overheads are allocated using various methods of costing. The most common method is to allocate the overheads to the units is traditional method. Usually this predetermined overhead rate will be calculated at the beginning of the period. This rate is used to charge overhead costs to a particular job. It is calculated by dividing the overhead cost with the labor hours or machine hours as per the policy adapted by a company.

Job-order costing: Job-order costing system is used to collect and assign manufacturing costs to the units manufactured individually or to a particular job. This costing system is used in a company which produces products that are different from each other. It implies this costing is helpful when the produces products those are not identical to one another.

Fundamentals

Journal entries: The transactions of an organization are recorded in the books of accounts through journal entries. The analyzing and journalizing of transactions is the second step in the accounting cycle. These journal entries are used to post the transactions into ledger.

1.

Prepare the journal entry to record the transaction of purchase of raw material as shown below:

Prepare the journal entry to record the transaction of factory wages as shown below:

Prepare the journal entry to record the use of raw materials in production process and general purpose as shown below:

Prepare the journal entry to record the use of factory labor and general purpose in production process as shown below:

Prepare the journal entry to record the manufacturing overhead incurred in production process as shown below:

Prepare the journal entry to record the depreciation on factory equipment as shown below:

Prepare the journal entry to record the depreciation on building as shown below:

Prepare the journal entry to record the manufacturing overhead to work-in-process as shown below:

Firstly, calculate the cost of goods manufactured as shown below:

The cost of goods manufactured is.

Prepare the journal entry for cost of goods manufactured during the year as shown below:

Ans: Part 1.a

Part 1.b

Part 2.a

Part 2.b

Part 3

Part 4

Part 5

Part 6

Part 7