Question

Maple Leaf Ltd, a manufacturer of fibre optic communications equipment, uses a job-order costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of labour hours using a predetermined overhead rate. Operations for the year have been completed, and ll of the accounting entries have been made for the year except the application of manufacturing overhead to the jobs worked on during November, the transfer of costs from Work in Process to Finished Goods for the jobs completed in November, and the transfer of costs from Finished Goods to Cost of Goods Sold for the jobs that have been sold during November. Summarized data as of November Operations:

ACCOUNT BALANCES
1-Nov 30-Nov
Finished Goods RS.70,000 Rs.60,000
Work in Process             50,000 ?
Direct Materials            10,000       20,000
Accounts payable ?       15,000
Accrued Payroll          10,000       20,000
Accumulated Depreciation-Office equipment        80,000       90,000


    Other information:
a) Direct materials purchased on account during November, Rs.55, 000 and returned Rs.5000.

b) During November, direct labor employees worked 30,000 hours at a rate of Rs.6 per hour.

c) Jobs 385,386 and 387 were still in process at the end of November. A total of Rs.5, 000 of direct materials has been charged to these three jobs. To date, 7,000 direct labour hours have been worked on these jobs.

d) Sales revenue Rs.700, 000.

e) Depreciation and other expenses Rs.50, 000 of which 30% related to factory.

f) Interest expense Rs.10, 000.

Required:
Prepare Income statement for the month of November. Show all supporting computations.

Answer 1

Income Statement for the month of November:

Particulars	Calculation	Rs.	Rs.
Sales Revenue	Given		700,000
Less: Cost of Goods Sold	(Working)		(244,500)
Gross Profit	700,000-204,500		455,500
Less: Operating Expenses:
Depreciation & Other Expenses	50,000*70%	35,000
Interest Expense	Given	10,000
Accrued Payroll	20,000-10,000	10,000
Total Operating Expenses			55,000
Net Income	495,500-45,000		400,500

Working:

Particulars	Direct Materials (DM)	Work in Progress (WIP)	Finished Goods (FG)
Opening Balance	10,000	50,000	70,000
Add: Purchases	55,000	0	0
Less: Returns	(5,000)	0	0
Add: Labour (30,000*6)	0	180,000	0
Add: Overhead (30,000*0.50)	0	15,000	0
Sub-Total	60,000	245,000	70,000
Transfer from DM to WIP	(40,000)	40,000	0
Transfer from WIP to FG	0	(234,500)	234,500
Cost of Goods Sold	0	0	(244,500)
Closing Balance	20,000	50,500	60,000

Predetermiined Overhead Rate = Factory Overheads / Direct Labor Hours

= (50,000*30%) / 30,000

= 15,000 / 30,000

= Rs. 0.50

Closing Balance of WIP = 5,000 + (7,000*6) + (7,000*0.50)

= 5,000 + 42,000 + 3,500

= Rs. 50,500

Transfer from WIP to FG = 245,000 + 40,000 - 50,500

= Rs. 234,500

Cost of Goods Sold = 70,000 + 234,500 - 60,000

= Rs. 244,500