In: Accounting
Summative Case Study: SRS Educational Supply Company
Part 1 – Job Order Costing / Process Costing
SRS Educational Supply Company provides educational materials and
supplies to educational institutions. The company provides
educational supply needs that includes workbooks, classroom visual
aids, instructor support materials, art supplies, lab supplies, and
administrative office supplies. Since SRS Educational Supply
Company consistently produces the same service to its customers,
the company uses job order costing. The company’s processing units
are assigned costs. For example, the company will determine all of
the costs associated with the sales/marketing in a certain period
and divide the costs by the number of customers that the company
currently has. The cost per customer then becomes a part of the
inputs and its used to determine the cost of sales/marketing and
the cost of each customer. Service industries often do not match
directly the normal costing systems, but the same concepts can
still be used to determine the costs per customer.
The SRS Educational Press is wholly owned by the Company. It
performs the bulk of its work for the print materials that are sold
to the customers. The press also publishes and maintains a stock of
books for general sale. The press uses normal costing to cost each
job. Its job-costing system has two direct-cost categories (direct
materials and direct manufacturing labor) and one indirect-cost
pool (manufacturing overhead, allocated on the basis of direct
manufacturing labor costs).
The following data (in thousands) pertain to 2017:
Direct materials and supplies purchased on credit: $800 Direct
materials used: $710 Indirect materials issued to various
production departments: $100 Direct manufacturing labor: $1,300
Indirect manufacturing labor incurred by various production
departments: $900 Depreciation on building and manufacturing
equipment: $400 Miscellaneous manufacturing overhead incurred by
various production departments: $550 o (Ordinarily, this would be
detailed as repairs, photocopying, utilities, etc.) Manufacturing
overhead allocated at 160% of direct manufacturing labor costs: ?
Cost of goods manufactured: $4,120 Revenues: $8,000 Cost of
goods sold (before adjustment for under- or overallocated
manufacturing overhead): $4,020 Inventories, December 31, 2016
(not 2017):
o Materials control: $100 o Work-in-process control: $60 o Finished
goods control: $500
Submission Requirements for Final Project I:
As the accountant, the company has asked you to perform the
following tasks:
1. Prepare an overview diagram of the job-costing system at the SRS
Educational Press. 2. Prepare journal entries to summarize the 2017
transactions. As your final entry, dispose of the year-end under-
or overallocated manufacturing overhead as a write-off to cost of
goods sold. Number your entries. Explanations for each entry may be
omitted. 3. Show posted T-accounts for all inventories, Cost of
Goods Sold, Manufacturing Overhead Control, and Manufacturing
Overhead Allocated. 4. How did the SRS Educational Press perform in
2017? Should the company continue to have in-house press
production?
You will submit your answers/explanations for Final Project I in a
memo-style format to the company’s leadership team. Use Microsoft
Word and Excel.
2 | Journal Entries | 3 | Material Control | |||||||||
Date | Account Title | Debit-$ | Credit-$ | Balance 12/31/2016 | 100 | 2 Issues | 710 | |||||
1 | Material Control | 800 | 1 Purchase | 800 | 3 Issues | 100 | ||||||
Account Payable Control | 800 | Balance 12/31/2017 | 90 | |||||||||
2 | W.I.P Control | 710 | W.I.P Control | |||||||||
Material Control | 710 | Balance 12/31/2016 | 60 | 8 Goods Completed | 4120 | |||||||
3 | Manufacturing OH Control | 100 | 2 Direct Materials | 710 | ||||||||
Material Control | 100 | 4-Direct Man Labor | 1300 | |||||||||
4 | W.I.P Control | 1300 | 7-Manu OH allocated | 2080 | ||||||||
Manufacturing OH Control | 900 | Bal-12/31/2017 | 30 | |||||||||
Wages Payable Control | 2200 | F.G Control | ||||||||||
5 | Manufacturing OH Control | 400 | Balance12/31/2016 | 500 | 10- Goods Sold | 4020 | ||||||
Accumulated Depreciation-Building and manufacturing equipment | 400 | 8-Goods Completed | 4120 | |||||||||
6 | Manufacturing OH Control | 550 | Balance 12/31/2017 | 600 | ||||||||
Miscellaneous Accounts | 550 | Cost of Goods Sold | ||||||||||
7 | W.I.P Control | 2080 | 10-Goods Sold | 4020 | 11 Adjust for over allocation | 130 | ||||||
Manufacturing OH Allocated | 2080 | Balance 12/31/2017 | 3890 | |||||||||
1.6*$1300=$2080 | Manufacturing OH Control | |||||||||||
8 | Finished Goods Control | 4120 | 3 Indirect materials | 100 | 11 to Close | 1950 | ||||||
W.I.P Control | 4120 | 4-indirect Manufacturing labor | 900 | |||||||||
9 | Accounts Receivable Control | 8000 | 5 Depreciation | 400 | ||||||||
Revenues | 8000 | 6 Misc | 550 | |||||||||
10 | Cost of Goods Sold | 4020 | Balance | 0 | ||||||||
Finished Goods Control | 4020 | Manufacturing OH Allocated | ||||||||||
11 | Manufacturing OH Allocated | 2080 | 11 To Close | 2080 | 7 Man OH allocated | 2080 | ||||||
Manufacturing OH Control | 1950 | Balance | 0 | |||||||||
Cost of Goods Sold | 130 | |||||||||||
4 | Sales | $8,000 | ||||||||||
Less COGS | $3,890 | |||||||||||
Gross Margin | $4,110 | 51.4 | ||||||||||
The gross Margin is over 51% which is a very good indicator as the industry average of GM | ||||||||||||
ratio above 30% are considered good | ||||||||||||
The company dd a good job costing of estimating M.O.H .OH was over applied by | ||||||||||||
$130 ie 130/1950 or 6.7% |