Question

1.

Job Order Cost Sheet

Remnant Carpet Company sells and installs commercial carpeting for office buildings. Remnant Carpet Company uses a job order cost system. When a prospective customer asks for a price quote on a job, the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On October 1, Remnant Carpet Company gave Jackson Consulting an estimate of $2,856 to carpet the consulting firm’s newly leased office. The estimate was based on the following data:

Estimated direct materials:
40 meters at $30 per meter	$ 1,200
Estimated direct labor:
24 hours at $20 per hour	480
Estimated factory overhead (75% of direct labor cost)	360
Total estimated costs	$2,040
Markup (40% of production costs)	816
Total estimate	$2,856

On October 3, Jackson Consulting signed a purchase contract, and the delivery and installation were completed on October 10.

The related materials requisitions and time tickets are summarized as follows:

Materials Requisition No.	Description	Amount
112	20 meters at $30	$600
114	24 meters at $30	720

Time Ticket No.	Description	Amount
H10	12 hours at $20	$240
H11	16 hours at $20	320

Required:

Enter amounts as positive numbers.

1. Complete that portion of the job order cost sheet that would be prepared when the estimate is given to the customer.

2. Record the costs incurred, and complete the job order cost sheet.

JOB ORDER COST SHEET
Customer Jackson Consulting Date October 1 Date wanted October 10 Date completed October 10 Job. No. ESTIMATE
Direct Materials			Direct Labor			Summary
		Amount			Amount		Amount
40 Meters at $30		$	24 Hours at $20		$	Direct Materials	$
						Direct Labor
						Factory Overhead
Total		$	Total		$	Total cost	$
ACTUAL
Direct Materials			Direct Labor			Summary
Mat. Req. No.	Description	Amount	Time Ticket No.	Description	Amount	Item	Amount
112	20 Meters at $30	$	H10	12 Hours at $20	$	Direct Materials	$
						Direct Labor
114	24 Meters at $30		H11	16 Hours at $20		Factory Overhead
Total		$	Total		$	Total Cost	$

What is the best explanation for the variances between actual costs and estimated costs. (For this purpose, assume that the additional meters of material used in the job were spoiled, the factory overhead rate has proven to be satisfactory, and an inexperienced employee performed the work.)

a. The direct materials cost exceeded the estimate by $120 because 4 meters of materials were spoiled. The direct labor cost exceeded the estimate by $80 because an additional 4 hours of labor were used by an inexperienced employee. The factory overhead cost exceeded the estimate because an additional $60 of factory overhead was allocated because of the increase in direct labor.

b. Management didn't provide enough direction to complete tasks on budget.

c. The direct materials cost exceeded the estimate by $75 because 3 meters of materials were spoiled.

d. The direct labor cost exceeded the estimate by $120 because an additional 4 hours of labor were used by an inexperienced employee.

2.

Materials issued for the current month are as follows:

Requisition No.	Material	Job No.	Amount
201	Aluminum	500	$85,160
202	Plastic	503	26,540
203	Rubber	504	3,960
204	Glue	Indirect	2,180
205	Steel	510	37,960

Journalize the entry on Dec. 31 to record the issuance of materials. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS
General Ledger
ASSETS 110 Cash 121 Accounts Receivable 125 Notes Receivable 126 Interest Receivable 131 Materials 132 Work in Process 133 Factory Overhead 134 Finished Goods 141 Supplies 142 Prepaid Insurance 143 Prepaid Expenses 181 Land 191 Factory 192 Accumulated Depreciation-Factory LIABILITIES 210 Accounts Payable 221 Utilities Payable 231 Notes Payable 236 Interest Payable 241 Lease Payable 251 Wages Payable 252 Consultant Fees Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Wages Expense 531 Selling Expenses 532 Insurance Expense 533 Utilities Expense 534 Office Supplies Expense 540 Administrative Expenses 560 Depreciation Expense-Factory 590 Miscellaneous Expense 710 Interest Expense JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2 3

3.

A summary of the time tickets for the current month follows:

Job No.	Amount
100	$ 3,940
101	4,480
104	22,080
108	15,570
Indirect	6,130
111	7,120
115	7,960
117	30,690

	Required:
	Journalize the entry on Dec. 31 to record the factory labor costs. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS
General Ledger
ASSETS 110 Cash 121 Accounts Receivable 125 Notes Receivable 126 Interest Receivable 131 Materials 132 Work in Process 133 Factory Overhead 134 Finished Goods 141 Supplies 142 Prepaid Insurance 143 Prepaid Expenses 181 Land 191 Factory 192 Accumulated Depreciation-Factory LIABILITIES 210 Accounts Payable 221 Utilities Payable 231 Notes Payable 236 Interest Payable 241 Lease Payable 251 Wages Payable 252 Consultant Fees Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Wages Expense 531 Selling Expenses 532 Insurance Expense 533 Utilities Expense 534 Office Supplies Expense 540 Administrative Expenses 569 Depreciation Expense-Factory 590 Miscellaneous Expense 710 Interest Expense

Journalize the entry on Dec. 31 to record the factory labor costs. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3

Answer 1

JOB ORDER COST SHEET
ESTIMATE
Direct Materials			Direct Labor			Summary
		Amount			Amount		Amount
40 Meters at $30		1200	24 Hours at $20		480	Direct Materials	1200
						Direct Labor	480
						Factory Overhead	360
Total		1200			480	Total cost	2040
ACTUAL
Direct Materials			Direct Labor			Summary
Mat. Req. No.	Description	Amount	Time Ticket No.	Description	Amount	Item	Amount
112	20 Meters at $30	600	H10	12 Hours at $20	240	Direct Materials	1320
114	24 Meters at $30	720	H11	16 Hours at $20	320	Direct Labor	560
						Factory Overhead	420
Total		1320	Total		560	Total cost	2300

a. The direct materials cost exceeded the estimate by $120 because 4 meters of materials were spoiled. The direct labor cost exceeded the estimate by $80 because an additional 4 hours of labor were used by an inexperienced employee. The factory overhead cost exceeded the estimate because an additional $60 of factory overhead was allocated because of the increase in direct labor.

2.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1	Dec. 31	Work in Process		153620
2		Factory Overhead		2180
3		Materials			155800

3.

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1	Dec. 31	Work in Process		91840
2		Factory Overhead		6130
3		Wages Payable			97970