Question

Riverwards Inc. is a small company that manufactures irrigation systems. The line workers earn $32/hour. The company uses job order costing and applies manufacturing overhead on the basis of labor hours. At the beginning of the month, the following estimates were made:

Estimated Manufacturing Overhead Costs -              $270,000

Estimated Direct Labor Hours -                                          900

Beginning balances for inventory accounts were as follows:

            Raw Materials -                                   $30,000

            Work in Process -                                $41,000 Job 1311

            Finished Goods -                                $150,000 Job 1310

The following transactions took place during the month (all purchases and services were acquired on account):

1. $255,000 in raw materials were purchased
2. Direct materials were requisitioned for use in Job 1312, $55,000.
3. Direct materials were requisitioned for use in Job 1313, $80,000.
4. Headquarters incurred $35,000 in utility bills.
5. The factory incurred $15,000 in utility bills.
6. The record for Job 1311 indicated that 280 labor hours were used.
7. The record for Job 1312 indicated that 375 labor hours were used.
8. The record for Job 1313 indicated that 390 labor hours were used.
9. Jobs 1311 and 1312 were completed during the month.
10. Job 1310 and 1312 were sold during the month for $800,000.
11. Factory janitor salaries for the month were $5,000.
12. The factory managers’ salaries totaled $160,000.
13. Indirect materials requisitioned totaled $35,000.
14. $100,000 of depreciation on the factory equipment was accrued this month.
15. Advertising costs for the month were $65,000.

Use MS Excel to show t-accounts or journal entries (your choice) to record the previous transactions. Also answer the following 5 questions in the spreadsheet. Then upload the file.

1. What is the ending balance for Raw Materials? __________________________
2. What is the Cost of Goods Manufactured? _______________________________
3. What is the Cost of Goods Sold on the income statement____________________
4. How much overhead was actually incurred this period? __________________________
5. What is the net income for the period? _________________________________

Answer 1

Account Titles and Explanation	Debit	Credit
Raw materials	255000
Accounts payable		255000
(To record raw materials purchased on account)
Work in process ($55000 + $80000)	135000
Raw materials		135000
(To record direct materials requisitioned)
Utilities expense	35000
Accounts payable		35000
(To record utilities incurred by headquarters)
Manufacturing overhead	15000
Accounts payable		15000
(To record utilities incurred by factory)
Work in process [$32 x (280 + 375 + 390)]	33440
Wages payable		33440
(To record direct labor cost incurred)
Work in process [$300 x (280 + 375 + 390)]	313500
Manufacturing overhead		313500
(To record overheads applied)
Finished goods ($133960 + $179500)	313460
Work in process		313460
(To record jobs completed and transferred)
Accounts receivable	800000
Sales revenue		800000
(To record jobs sold)
Cost of goods sold	329500
Finished goods ($150000 + $179500)		329500
(To record cost of jobs sold)

Working:

	Job 1311	Job 1312	Job 1313	Total
Beg. Bal.	41000	0	0	41000
Direct materials	0	55000	80000	135000
Direct labor @ $32/DLH	8960	12000	12480	33440
MOH @ $300/DLH*	84000	112500	117000	313500
Total job cost $	133960	179500	209480	522940

*Predetermined overhead rate = $270000/900 = $300 per DLH

Manufacturing overheads incurred:
Factory utility expense	15000
Factory janitor salaries	5000
Factory managers' salaries	160000
Indirect materials	35000
Depreciation-factory equip.	100000
Total overheads actually incurred $	315000

Underapplied overheads = $315000 - $313500 = $1500

Sales		800000
Cost of goods sold ($329500 + $1500)*		331000
Gross profit		469000
Operating expenses:
Utility expense	35000
Advertising costs	65000	100000
Net income		369000

Note: The underapplied overheads are closed to the cost of goods sold.

Ending balance for Raw Materials: $115000

Cost of Goods Manufactured: $313460

Cost of Goods Sold: $329500

Overhead actually incurred: $315000

Net income: $369000