Question

The Polaris Company uses a job-order costing system. The following transactions occurred in October:

Raw materials purchased on account, $209,000.

Raw materials used in production, $191,000 ($152,800 direct materials and $38,200 indirect materials).

Accrued direct labor cost of $50,000 and indirect labor cost of $20,000.

Depreciation recorded on factory equipment, $104,000.

Other manufacturing overhead costs accrued during October, $131,000.

The company applies manufacturing overhead cost to production using a predetermined rate of $6 per machine-hour. A total of 76,000 machine-hours were used in October.

Jobs costing $510,000 according to their job cost sheets were completed during October and transferred to Finished Goods.

Jobs that had cost $452,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 26% above cost.

Required:

1. Prepare journal entries to record the transactions given above.

2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $35,000.

Answer 1

Solution:

Part 1 -- Journal Entries

Transaction	Accounts	Debit	Credit
1)	Raw materials	$209,000
	Accounts Payable		$209,000
2)	Work In Process (direct materials)	$152,800
	Manufacturing Overhead (indirect materials)	$38,200
	Raw materials		$191,000
3)	Work In Process (Direct labor)	$50,000
	Manufacturing Overhead (indirect labor)	$20,000
	Wages Payable		$70,000
4)	Manufacturing Overhead	$104,000
	Accumulated Depreciation - Equipment		$104,000
5)	Manufacturing Overhead	$131,000
	Accounts payable		$131,000
6)	Work In Process (MFR OH Applied 76,000 MHs x $6)	$456,000
	Manufacturing Overhead		$456,000
7)	Finished Goods Inventory	$510,000
	Work In Process		$510,000
8-a)	Cost of Goods Sold	$452,000
	Finished Goods Inventory		$452,000
8-b)	Accounts Receivable	$569,520
	Sales Revenue (452,000*126%)		$569,520

Part 2 --- T-Accounts

Work IN Process
Beg. Bal	$35,000	Finished Goods Inventory (Completed and trfd)	$510,000
Direct Materials	152800
Direct Labor	$50,000
Applied Manufacturing Overhead	$456,000
Ending Bal.	$183,800
Manufacturing Overhead
Indirect materials	$38,200	Work IN Process (MFR OH Applied)	$456,000
Indirect labor	$20,000
other MF OH	$131,000
Depreciation	$104,000
		Ending Bal	$162,800

Part 3 – Ending Balance

	$$
Raw materials inventory ($209,000 - 191,000)	$18,000
Work In Process Inventory	$183,800
Finished Goods Inventory ($510,000 - COGS 452,000)	$58,000

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