Question

QUESTION 1   

The Gladden Corporation began business as a manufacturing company on January 1, 2014. Its first fiscal year will end on December 31, 2014. Gladden uses a job-order costing system, and applies manufacturing overhead cost to jobs using a predetermined overhead rate based on direct labour cost. At the beginning of 2014, the following estimates were made as a basis for computing the predetermined overhead rate for the year:

                              Budgeted manufacturing overhead cost for 2014:      $355,200

                                    Budgeted direct labour cost for 2014:                         $296,000

It is now November 30, 2014. The following information has been taken from the company’s general ledger and production information system for the year to date (i.e., as of the close of business on November 30):

           Job number               Total cost to date      Status of Job at November 30, 2014

                                                on job cost sheet

                        1                                  $175,200                                             Finished

                        2                                  $ 85,000                                             In Process

                        3                                  $135,700                                             Sold

                        4                                  $ 78,000                                             In Process

                        5                                  $105,600                                             Sold

                        6                                  $ 84,700                                             Finished

(“In Process” means the job is still being worked on and has not yet been finished or sold. “Finished” means the job has already been completed this year, but not yet sold. “Sold” means the job has already been completed this year, and has already been sold this year.)

          

The following job-related transactions took place during the month of December, 2014:

1. Raw materials requisitioned for use in production:

                        For Job 2:                    $25,000

     For Job 4:                    $14,000

    For Job 7:                  $13,000    (new job started on December 1, 2014)

      For Job 8:                  $10,000    (new job started on December 2, 2014)

Indirect materials:      $25,000

2. Salaries and wages incurred as follows:

      For Job 2:                    $19,000

      For Job 4:                    $24,000

      For Job 7:                  $52,000

      For Job 8:                  $18,000     

      Indirect labour:           $21,000

Selling and administrative salaries: $ 38,000

3. Manufacturing overhead cost was applied to jobs for December as per company policy.
4. Jobs number 4 and 8 were completed and transferred to the finished goods warehouse toward the end of the month.
5. Jobs number 4 and 6 were sold at the end of the month.

Required:

1. With reference to the job cost sheets as of November 30, 2014, provided earlier in the question, determine the beginning balances for December (i.e., at the start of business on December 1, 2014) in the following accounts: Work-in-Process, Finished Goods, and Cost of Goods Sold. Show calculations or provide brief explanation as needed or appropriate. ( 2 marks)
2. Calculate the predetermined overhead rate, apply overhead to each job for the month of December, and determine the total cost of each job on each job cost sheet as of December 31, 2014. ( 7 marks)
3. Provide journal entries for the job-related transactions for the month of December outlined in information points a) through e) above. ( 6 marks)
4. Post the journal entries above as needed and determine the December 31, 2014, balances in the Work-in-Process, Finished Goods, and Cost of Goods Sold t-accounts only. ( 3 marks) (b) Demonstrate that the account balances in part 4 just above are equal to the total cost on the job cost sheets of those jobs included in each account above as of December 31, 2014. ( 2 marks)

Answer 1

SOLUTION:-

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