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Summative Case Study: SRS Educational Supply Company Part 1 – Job Order Costing / Process Costing...

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.

Solutions

Expert Solution


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%

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