Question

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Log Cabin Homes, Inc., uses a job cost system to account for its jobs, which are prefabricated houses. As of January 1, 2019, its records showed inventories as follows:

The work in process inventory consisted of two jobs:

Cost and sales data for 2019:

1. Materials purchased on account, $400,000.
2. Direct materials used: Job No. 22, $60,000; Job No. 23, $120,000; Job No. 24, $180,000. Indirect materials used, $10,000.
3. Direct labor costs: Job No. 22, $100,000; Job No. 23, $200,000; and Job No. 24, $80,000. Indirect labor costs, $80,000.
4. Overhead is assigned to jobs at $100 per machine-hour. Job No. 22 used 500 machine-hours, Job No. 23 used 1,000 machine-hours, and Job No. 24 used 300 machine-hours in January.
5. Job Nos. 22 and 23 were completed and transferred to Finished Goods Inventory.
6. Job Nos. 21 and 22 were sold on account for $1,200,000, total.
7.    Manufacturing overhead costs incurred, other than indirect materials and indirect labor, were depreciation, $80,000, and heat, light, power, miscellaneous, $40,000.

a.   Prepare journal entries (using the T-account format) to assign the preceding costs to jobs. (Refer to Exhibits 17.9 and 17.10)

Show all of the appropriate entries ultimately debiting Finished Goods Inventory and Cost of Goods Sold.

Transfer overapplied or underapplied overhead to Cost of Goods Sold.

(Use the T-account template I provided earlier this semester. Be sure to establish the beginning balance in the T-account.)

b.   Assuming selling and administrative expenses were $100,000, prepare an income statement for 2019. (refer to Exhibit 17.6 for format)

Answer 1

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a.

Journal Entries

S.No      Particulars Debit Credit

1             Material Invemtory Dr $4,00,000           

To Accounts Payable $4,00,000

(To record purchase of Materials)                           

2             WIP Inventory- Job no. 22 Dr $60,000              

WIP Inventory- Job no. 23 Dr $1,20,000           

WIP Inventory- Job no. 24 Dr $1,80,000           

Manufacturing Overhead Dr $10,000              

To Material Inventory $3,70,000

(To record Direct and indirect material used)                      

3             WIP Inventory- Job no. 22 Dr $1,00,000           

WIP Inventory- Job no. 23 Dr $2,00,000           

WIP Inventory- Job no. 24 Dr $80,000              

Manufacturing Overhead Dr $80,000              

To Payroll Summary $4,60,000

(To record facory labor cost incurred)                    

4             WIP Inventory- Job no. 22 Dr ($100*500)             $50,000              

WIP Inventory- Job no. 23 Dr ($100*1000)           $1,00,000           

WIP Inventory- Job no. 24 Dr ($100*300)             $30,000              

To Manufacturing Overhead $1,80,000

(To record application of overhead to production)                           

5             Finished Goods Inventory $8,10,000           

To WIP Inventory- Job no. 22

(96000+60000+100000+50000) $3,06,000

To WIP Inventory- Job no. 23

(84000+120000+200000+100000) $5,04,000

(To record completion of job 22 and 23)               

6             Accounts Receivable Dr $12,00,000         

To Sales $12,00,000

(To record sales)                            

Cost of Goods sold Dr $4,46,000           

To Finished Goods Inventory ($306000+140000) $4,46,000

(To record cost of Goods sold)                  

7             Manufacturing Overhead Dr $1,20,000           

To Accumulated Depreciation $80,000

To Accounts Payable $40,000

(To record Additional Overhead costs incurred)                 

8             Cost Of Goods sold Dr $30,000              

To Manufacturing Overhead $30,000

(To dispose of under-applied overhead)

[Overhead incurred - Overhead applied]

[(10000+80000+120000) - 180000] = $30,000

b.

Log cabin Homes, Inc.

Income statement

For the year ended December 31, 2019

Sales Revenue $12,00,000

Less: Adjusted Cost of Goods sold ($446000+$30000)     $4,76,000

Gross Margin $7,24,000

Less: Selling and administrative expenses $1,00,000

Operating Income $6,24,000