Question

Maria Young is the sole stockholder of Purl of Great Price Company (POGP Company), which produces high-end knitted sweaters and sweater vests for sale to retail outlets. The company started in January of the current year, and employs three knitters (each of whom work 40 hours per week) and one office manager/knitting supervisor (this employee works 20 hours per week as office manager, and 20 hours per week as knitting supervisor). All wages are paid in cash at the end of each month.

Each knitter has a knitting machine that is used about 2/3 of the knitter’s time, the rest of the knitter’s time being involved in hand knitting and piecing together the garments. The company also has a packaging machine used to wrap the garments in plastic for shipping, which is operated by the office manager/knitting supervisor approximately 5 hours per week.

The knitting machines were purchased on January 1 of the current year, and cost $2,400 each, with an anticipated useful life of 10 years and no salvage value. The packaging machine was purchased on the same date and cost $4,800, with the same anticipated useful life and salvage value.

Required:

1. Review the data in the Predetermined Factory Overhead Rate panel, and compute the predetermined factory overhead rate for POGP Company.

2. On December 10, POGP Company receives an order for 200 sweater vests and assigns Job 83 to the order. Review the Materials Requisition panel.

A. Journalize the entry to record the addition of the materials to Work in Process.*

B. On the Job Cost Sheets panel, add the materials to the Job Cost Sheet for Job 83.

3. On December 15, review the source documents on the Time Tickets panel.

A. Journalize the entry to record the addition of direct labor to Work in Process for the period December 1 through December 15.*

B. Journalize the entry to record the addition of factory overhead to Work in Process for the period December 1 through December 15.*

C. On the Job Cost Sheets panel, add the appropriate amount of direct labor and factory overhead costs to the Job Cost Sheet for Job 62 for the period December 1 through December 15.

4. On December 21, Job 62 is completed. Review the Job Cost Sheets panel and your journal entries. Journalize the entry to move the associated costs to the Finished Goods account.*

5. On December 22, 75 of the 100 sweaters from Job 62 are sold on account for $125 each. Journalize the following transactions:*

A. The entry to record the sale.

B. The entry to record the transfer of costs from Finished Goods to Cost of Goods Sold.

6. On December 31, the last work day of the year for the knitters, review the source documents on the Time Tickets panel.

A. Journalize the entry to record the addition of direct labor to Work in Process for the period December 16 through December 31.*

B. Journalize the entry to record the addition of factory overhead to Work in Process for the period December 16 through December 31.*

C. On the Job Cost Sheets panel, add the appropriate amount of direct labor and factory overhead costs to the Job Cost Sheet for Job 83 for the period December 16 through December 31.

7. On December 31, journalize the following transactions.* Note that expenses (B), (C), and (D) were paid in cash.

A. One month’s depreciation on equipment

B. One month’s payroll for all employees

C. One month’s rent of $1,500

D. One month’s utilities of $1,275

8. On December 31, prepare the journal entry to dispose of the balance in the Factory Overhead account.*

9. What are the balances in the following accounts as of December 31?

A. Materials

B. Work in Process

C. Finished Goods

D. Factory Overhead

E. Cost of Goods Sold

*Refer to the Chart of Accounts for exact wording of account titles.

POGP Company

UNADJUSTED TRIAL BALANCE

November 30, 20Y8

ACCOUNT TITLE DEBIT CREDIT

1 Cash 20,000.00

2 Accounts Receivable 1,000.00

3 Supplies 200.00

4 Materials 5,000.00

5 Work in Process 5,404.00

6 Equipment 12,000.00

7 Accumulated Depreciation-Equipment 825.00

8 Accounts Payable 150.00

9 Common Stock 10,000.00

10 Retained Earnings 12,000.00

11 Dividends 18,096.00

12 Sales 307,500.00

13 Cost of Goods Sold 255,040.00

14 Factory Overhead 15.00

15 Wages Expense 13,750.00

16 Totals 330,490.00 330,490.00

Since the company is more reliant on labor than machines, Maria decides to use direct labor hours (DLH) as the activity base for her predetermined factory overhead rate, rather than machine hours (MH).

Estimated Selected Amounts for the Year

Estimated depreciation on equipment $1,200.00

Estimated total Office Manager/Knitting Supervisor wages $36,000.00

Estimated office utilities $3,000.00

Estimated factory utilities $4,800.00

Estimated factory rent $18,000.00

Activity Base Data

Estimated number of DLH for the year 5,000

Estimated number of MH for the year 3,500

Calculate the predetermined factory overhead rate for the current year. If required, round your answers to the nearest cent.

$8.40 per DLH  

Materials Requisition Date: Dec. 10

Req. No. 12255 Job No. 83

Description Qty. Issued Unit Price Amount

Yarn type B 600 skeins $5.00 $3,000

Total issued $3,000

Time Ticket No. 1255 Name: Susan Blake

Work Description: Knitting/piecing

Dates Job No. Hours Worked Unit Price Amount

12/01-12/15 62 65 $15.00 $975.00

12/16-12/31 83 103 $15.00 $1,545.00

Total Cost $2,520.00

Time Ticket No. 2274 Name: Josh Porter

Work Description: Knitting/piecing

Dates Job No. Hours Worked Unit Price Amount

12/01-12/15 62 75 $15.00 $1,125.00

12/16-12/31 83 88 $15.00 $1,320.00

Total Cost $2,445.00

Time Ticket No. 3923 Name: Mary Jones

Work Description: Knitting/piecing

Dates Job No. Hours Worked Unit Price Amount

12/01-12/15 62 60 $15.00 $900.00

12/16-12/31 83 109 $15.00 $1,635.00

Total Cost $2,535.00

Add the amounts in requirements 2(B), 3(C), and 6(C) to the appropriate areas of the following job cost sheets. If there is no amount or an amount is zero, enter "0". If required, round your answers to the nearest cent.

Job 62 100 units: Sweaters

Direct Materials Direct Labor Factory Overhead Total

Balance Dec. 1 $5,000 $300 $104 $5,404

Dec. 15

Total Cost

Unit Cost

Job 83 200 units: Sweater vests

Direct Materials Direct Labor Factory Overhead Total Job Cost

Balance Dec. 1 $0 $0 $0 $0

Dec. 10

Dec. 31

Total Cost

Journalize the entries in requirements 2 - 8. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 15

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

What are the balances in the following accounts as of December 31?

Materials

Work in Process

Finished Goods

Factory Overhead

Cost of Goods Sold

Answer 1

Estimated Selected Amounts for Year
	Estimated depreciation on equipment	$1,200
	Estimated total Office Manager/Knitting Supervisor wages (30000*20/40)	$15,000
	Estimated factory utilities	$4,800
	Estimated factory rent	$18,000
	Total estimated factory overhead	$39,000
	Estimated number of DLH for the year	5,000
	Answer 1 Predetermined factory overhead rate	7.8
	39000/5000
	Job 62	100 units:	Sweaters
		Direct Materials	Direct Labour	Factory Overhead	Total
	Balance Dec. 1	$5,000	$300	$104	$5,404
	Dec. 15		3000	1560	4560
			975+1125+900	(65+75+60)*7.8
	Total Cost	$5,000	$3,300	$1,664	$9,964
				Unit Cost
	Job 83	200 units:	Sweater vests
		Direct Materials	Direct Labour	Factory Overhead	Total Job Cost
	Balance Dec. 1	$0	$0	$0	$0
	Dec. 10	0	0	0	0
	Dec. 31	3500	4500	2340	10340
	Total Cos		1545+1320+1635	(103+88+109)*7.8
Date	Particular	Dr	Cr
10-December	Work In process	3500
	Material		3500
2 B) added in job cost sheet see above
3	Work In process	3000
December1-December15	Wages Expenses		3000
B	Work In process	1560
	Factory Overhead		1560
c) added to cost sheet
4	Finished Goods	$9,964
21-Dec	Work In process		$9,964
5	Accounts Receivable (75*125)	9375
22-Dec	Sales		9375
	Cost of goods sold (9964/100*75)	$7,473
	Finished Goods		$7,473
6
Dec 16-31	Work In process	4500
a	Wages Expenses		4500
b	Work In process	2340
	Factory Overhead		2340
c) added to cost sheet
7	Factory Overhead	60
	Accumulated depreciation-equipment (2400+4800)/120*1		60
b	Wage expenses (7500+(12500/2))	8750
	Factory overhead (30000/12*20/40)	1250
	Cash		10000
	(7500+ supervisor salary (30000/12=2500)= 10000
	Wages
Job 62	(65+75+60)*15	3000
Job 83	(103+88+109)*15	4500
c	Factory Overhead	1500
	Cash		1500
d	Factory Overhead	1275
	Cash		1500
	Factory overhead Under applied
	Actual (1500+1275+1250)	4025
	Applied overhead (1560+2340)+15	3915
	Under applied	110
	see below working
	T account Factory Overhead
	Applied	4025	Opening bal	15
			WIP	3900
	ending balance	110
8	Cost of goods sold	110
	Factory Overhead		110
9
A.	Materials (5000-3500)	1500
B.	Work in Process	10340
C.	Finished Goods (9964-7473)	2491
D.	Factory Overhead	0
E.	Cost of Goods Sold (7473+110)	7583