Question

Exercise:

On April 1, Rowand Company is working on two jobs, A and B. Job A contains 1000 units and Job B contains 500 units.

The cost sheet shows $30,000 balance in job A, where job B has $0 balance on April 1.

The company used to apply overhead on the basis of direct labor costs. The company estimates annual overhead costs will be $792,000, and annual direct labor costs will be $900,000.

At the beginning of April, the company had $7,000 in raw materials on hand. During the month, the company purchased $60,000 raw materials.

During April, $52,000 in raw materials were requisitioned from the storeroom for use in production. These raw materials include $50,000 direct materials, and 2,000 indirect materials were applied. (Of these direct raw materials, $28,000 was issued for job A and $22,000 for job B).

April’s payroll sheets show $55,000 wages payable and $20,000 relates to payroll taxes payable.

Various time tickets show that $60,000 direct labor ($42,000 job A and $18,000 job B), and $15,000 indirect labor were assigned.

Expenses during Aprils were as follows:

            Utilities (heat, water, and power)      $41,000

            Rent on factory equipment                 31,200

            Miscellaneous factory costs                   5,800

            Total                                                    $78,000

Job A was completed at the end of April and shipped to the customer for total sales revenue of $225,000.

Required:

Prepare journal entries to record the preceding transactions and post to the proper account.

Show the job cost sheet for each job.

Prepare the cost of manufacturing schedule and the income statement at the end of April.

Answer 1

Journal Entries
1	Raw Material Inventory		$    60,000
	Accounts Payable			$    60,000
	(To record purchase of raw material)
2	WIP inventory Job A		$    28,000
	WIP inventory Job B		$    22,000
	Manufacturing Overhead		$      2,000
	Raw Material Inventory			$    52,000
	(To record raw material requisitioned)
3	Factory Labour		$    75,000
	Factory wages payable			$    55,000
	Payroll taxes payable			$    20,000
	(To record Payroll)
4	WIP inventory Job A		$    42,000
	WIP inventory Job B		$    18,000
	Manufacturing Overhead		$    15,000
	Factory Labour			$    75,000
	(To record Direct and indirect labour cost)
5	Utilities		$    41,000
	Rent on Factory equipment		$    31,200
	Misc. Factory costs		$      5,800
	Cash			$    78,000
	(To record manufacturing overheads)
6	Accounts receivable		$ 225,000
	Sales			$ 225,000
	(To record Job A sales revenue)
Job Cost Sheet for Job A
Particulars			Amount
Beginning WIP			$30,000
Direct material			$28,000
Direct Labour			$42,000
Manufacturing Overhead			$66,500
Total Cost			$166,500
Job Cost Sheet for Job B
Particulars			Amount
Beginning WIP			$0
Direct material			$22,000
Direct Labour			$18,000
Manufacturing Overhead			$28,500
Total Cost			$68,500
Cost of Manufacturing Schedule
for the month of April
Materials Cost:
Beginning Raw material Inventory					7000
Raw materials purchased					60000
Indirect material used					-2000
Ending Raw material inventory					-15000
Total Raw materials used						50000
Direct Labour cost:						60000
Overhead Costs:
Indirect materials					2000
Indirect labour					15000
Utilities					41000
Rent on Factory Equipment					31200
Misc. Factory Costs					5800
Total overhead Costs						95000
Total manufacturing cost						205000
Beginning work in progress inventory						30000
Cost of Goods Manufactured						235000
Ending WIP inventory for Job B						68500
Cost of Goods sold						166500
Income Statement
for the month of April
Sales					$225,000
Less: Cost of Goods sold					$166,500
Gross Profit					$58,500

Working note
Manufacturing overhead
Indirect Material			$2,000
Indirect Labour			$15,000
Utilities			$41,000
Rent			$31,200
Misc. Factory Costs			$5,800
Total			$95,000
Overhead for Job A =95000x(42000/60000)
=$66500
Overhead for Job B =95000x(18000/60000)
= $28500