Preparing Entries for Manufacturing Costs
Roy’s Appliance Repair Shop uses a job order costing system to track the cost of each repair. Roy’s applies its “garage or shop” overhead at a rate of $25 per direct labor hour spent on each repair. Roy’s uses the following accounts to track the cost of all repairs:
Raw Materials (parts and supplies) | |
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Repair Jobs in Process | |
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Cost of Repairs Completed and Sold | |
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Garage/Shop* Overhead Costs | |
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* Because an auto shop does not manufacture a product, the overhead cost would include all of the indirect costs that are incurred in the “garage or shop” that cannot be traced to a specific repair job.
The following transactions occurred during the most recent month:
(a)Purchased raw materials (parts and supplies) on account $21,000.
(b)Used $16,000 in raw materials (parts and supplies). Of this, $14,000 was for major parts that were traceable to individual repair jobs, and the remainder was for incidental supplies such as lubricants, rags, fuel, and so on.
(c)Recorded a total of $8,000 in direct labor cost (for 400 hours) that are owed but not yet paid.
(d)Applied overhead to repair jobs at a rate of $25 per direct labor hour.
(e)Recorded the following actual overhead costs:
Rent on garage (pre-paid in the prior month) | 14,000 |
Depreciation on repair equipment | 2,000 |
Garage supervisor’s salary (owed but not yet paid) | 3,000 |
(f) Completed repair jobs costing $45,000 and charged customers at cost plus 30 percent. (Note: You can bypass the Finished Goods Inventory account, which is not appropriate in this context.)
Required:
Prepare journal entries for transactions (a)–(f) using the account names shown and other appropriate accounts such as Cash, Payables, Accumulated Depreciation, Prepaids, and Sales Revenue.
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