Question

Job Order Costing and T-accounts

Arnold Company makes cabinets to customer order. Arnold applies overhead at the rate of 20% of direct labor cost. Jobs are marked up at 30% over cost.

On July 1, Finished Goods inventory consisted of Job 68, costing $9,300. Work in Process inventory consisted of three jobs: Job 70 for $3,200, Job 71 for $1,400, and Job 72 for $700.

During the month of July, Arnold worked on six jobs with the following direct materials and direct labor for the month:

	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75
Direct materials	$500	$1,200	$350	$1,700	$2,500	$150
Direct labor	1,400	2,800	800	3,000	4,900	300

Jobs 70, 71, 73 and 74 were completed during July. Jobs 68, 70, 71 and 74 were sold. (All completed jobs are first transferred to Finished Goods, then to Cost of Goods Sold as they are sold.)

Fill in the following job cost sheet and calculate the total cost by July 31 for each job.

	Job 70	Job 71	Job 72	Job 73	Job 74	Job 75
Beginning balance	$	$	$	$	$	$
Direct materials	$500	$1,200	$350	$1,700	$2,500	$150
Direct labor	1,400	2,800	800	3,000	4,900	300
Applied overhead
Total, July 31	$	$	$	$	$	$

Enter the appropriate numbers to the correct T-accounts for Work-in-Process, Finished Goods and Cost of Goods Sold for each of the following: (Hint: when entering amounts for a transaction that includes more than one job, enter them in order of the job number. That is, if a transaction included amounts for Jobs 70 and 72, the amount for Job 70 would be entered before the amount for Job 72.)

a.	Recognize the beginning balance of Work in Process and of Finished Goods.
b.	Recognize the use of total direct materials for production for July.
c.	Recognize the use of total direct labor for production for July.
d.	Recognize the application of overhead to production for July.
e.	Recognize the completion of each job finished in July.
f.	Transfer each sold job to COGS.
g.	Calculate the ending balances of: WIP, Finished Goods, and COGS.

Work-in-Process (WIP) Finished Goods Cost of Goods Sold   (a)      (e)      (b)      (e)      (c)      (e)      (d)      (e)            (g)      (a)      (f)      (e)      (f)      (e)      (f)      (e)      (f)      (e)            (g)         (f)      (f)      (f)      (f)            (g)    Sales revenue for Arnold in July is $

Use the Interactive Graph to answer the following questions:

If direct labor added to Job 73 equaled $2,400, the ending balances of each of the following accounts would be affected in what way?

Work in Process	- Select your answer -IncreaseDecreaseNo changeCorrect 1 of Item 3
Finished Goods	- Select your answer -IncreaseDecreaseNo changeCorrect 2 of Item 3
Cost of Goods Sold	- Select your answer -IncreaseDecreaseNo changeCorrect 3 of Item 3
Sales Revenue	- Select your answer -IncreaseDecreaseNo changeCorrect 4 of Item 3

If the overhead rate based on direct labor was 40%, the ending balances of each of the following accounts would be affected in what way?

Work in Process	- Select your answer -IncreaseDecreaseNo changeCorrect 5 of Item 3
Finished Goods	- Select your answer -IncreaseDecreaseNo changeCorrect 6 of Item 3
Cost of Goods Sold	- Select your answer -IncreaseDecreaseNo changeCorrect 7 of Item 3
Sales Revenue	- Select your answer -IncreaseDecreaseNo changeCorrect 8 of Item 3

Answer 1

Job cost sheet:
			Job 70	Job 71	Job 72	Job 73	Job 74	Job 75
Beginning balances			3200	1400	700	0	0	0
Direct materials			500	1200	350	1700	2500	150
Direct labor		a	1,400	2,800	800	3,000	4,900	300
Applied overhead		a*20%	280	560	160	600	980	60
Total, July 31			5380	5960	2010	5300	8380	510
	Work-in-Process				Finished Goods
Ref.	Debit	Ref.	Credit		Ref.	Debit	Ref.	Credit
(a)		e)			(a)		(f)
Job 70	3200	Job 70	5380		Job 68	9300	Job 68	9300
Job 71	1400	Job 71	5960		e)		Job 70	5380
Job 72	700	Job 73	5300		Job 70	5380	Job 71	5960
(b)		Job 74	8380		Job 71	5960	Job 74	8380
Job 70	500				Job 73	5300
Job 71	1200				Job 74	8380
Job 72	350					34320		29020
Job 73	1700				(g)
Job 74	2500				Balance	5300
Job 75	150
c)
Job 70	1400
Job 71	2800
Job 72	800
Job 73	3000
Job 74	4900
Job 75	300
(d)
Job 70	280
Job 71	560
Job 72	160
Job 73	600
Job 74	980
Job 75	60
	27540		25020
(g)
Balance	2520
	Cost of goods sold
Ref.	Debit	Ref.	Credit
(f)
Job 68	9300
Job 70	5380
Job 71	5960
Job 74	8380
	29020		0
(g)
Balance	29020
Sales revenue for arnold=Cost of goods sold*130%=29020*130%=$ 37726