Question

1. Mastery Problem: Job Order Costing

   Purl of Great Price Company

   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.

   Nov. 30 Trial Balance

   POGP Company Trial Balance November 30, 20Y8
   Account Title	Debit	Credit
   Cash	20,000
   Accounts Receivable	1,000
   Supplies	200
   Materials	5,000
   Work in Process	5,404
   Equipment	12,000
   Accumulated Depreciation-Equipment		825
   Accounts Payable		150
   Common Stock		10,000
   Retained Earnings		12,000
   Dividends	18,096
   Sales		307,500
   Cost of Goods Sold	255,040
   Factory Overhead		15
   Wages Expense	13,750
   	330,490	330,490

   Predetermined Factory Overhead Rate

   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
   Estimated total Office Manager/Knitting Supervisor wages	$30,000
   Estimated office utilities	$6,000
   Estimated factory utilities	$4,800
   Estimated factory rent	$24,000

   Activity Base Data
   Estimated number of DLH for the year	6,250
   Estimated number of MH for the year	4,375

   Compute the predetermined factory overhead rate for the current year.

   $10.56 per DLH

   Materials Requisition			Date: Dec. 10
   Req. No. 12255	Job No. 83
   Description	Qty. Issued	Unit Price	Amount
   Yarn type B	700 skeins	$5	$3,500
   		Total issued	$3,500

   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	$20	$1,300
   12/16-12/31	83	103	20	2,060
   			Total Cost	$3,360

   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	$20	$1,500
   12/16-12/31	83	88	20	1,760
   			Total Cost	$3,260

   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	$20	$1,200
   12/16-12/31	83	109	20	2,180
   			Total Cost	$3,380

   Job Cost Sheets

   On December 10, POGP Company receives an order for 200 sweater vests and assigns Job 83 to the order. Review the Materials Requisition table to add the materials to the Job Cost Sheet for Job 83.

   On December 15, review the Time Ticket tables to 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.

   On December 31, the last work day of the year for the knitters, review Time Ticket tables to 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.

   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	$	$	$	$

   Journal

   On December 10, POGP Company receives an order for 200 sweater vests and assigns Job 83 to the order. Review the Materials Requisition table to journalize the entry to record the addition of the materials to Work in Process. If an amount box does not require an entry, leave it blank.

   Dec. 10	Work in Process
   	Materials

   On December 15, review the Time Ticket tables to journalize the entry to record the addition of direct labor to Work in Process for the period December 1 through December 15. If an amount box does not require an entry, leave it blank.

   Dec. 15	Work in Process
   	Wages Payable

   On December 15, review the Time Ticket tables to journalize the entry to record the addition of factory overhead to Work in Process for the period December 1 through December 15. If an amount box does not require an entry, leave it blank.

   Dec. 15	Work in Process
   	Factory Overhead

   On December 21, Job 62 is completed. Review the Job Cost Sheets and your journal entries. Journalize the entry to move the associated costs to the finished goods account. If an amount box does not require an entry, leave it blank.

   Dec. 21	Finished Goods
   	Work in Process

   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.

   If an amount box does not require an entry, leave it blank.

   Dec. 22	Accounts Receivable
   	Sales
   Dec. 22	Cost of Goods Sold
   	Finished Goods

   On December 31, the last work day of the year for the knitters, review the Time Ticket tables to journalize the entry to record the addition of direct labor to Work in Process for the period December 16 through December 31. If an amount box does not require an entry, leave it blank.

   Dec. 31	Work in Process
   	Wages Payable

   On December 31, the last work day of the year for the knitters, review the Time Ticket tables to journalize the entry to record the addition of factory overhead to Work in Process for the period December 16 through December 31. If an amount box does not require an entry, leave it blank.

   Dec. 31	Work in Process
   	Factory Overhead

   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 $2,000

   d. One month’s factory utilities of $1,275

   If an amount box does not require an entry, leave it blank.

   Dec. 31	Factory Overhead
   	Wages Expense
   	Wages Payable
   	Cash
   	Accumulated Depreciation-Equipment

   On December 31, prepare the journal entry to dispose of the balance in the factory overhead account. If an amount box does not require an entry, leave it blank.

   Dec. 31	Factory Overhead
   	Cost of Goods Sold

   Final Question

   What are the balances in the following accounts as of December 31? If an amount is zero, enter "0".

   Materials	$
   Work in Process	$
   Finished Goods	$
   Factory Overhead	$
   Cost of Goods Sold	$

Answer 1

Equipment depreciation	$ 1,200
Knitting supervisor wages	15,000
Estimated factory utilities	4,800
Estimated factory rent	24,000
Estimated total factory overhead	$ 45,000

Predetermined factory overhead rate = Estimated Total Manufacturing Overhead / Estimated Total DLH = $ 45,000 / 6,250 DLH = $ 7.20 per DLH

Date	Account Titles	Debit	Credit
		$	$
Dec 10	Work in Process	3,500
	Materials		3,500
Dec 15	Work in Process	4,000
	Wages Payable		4,000
Dec 15	Work in Process	1,440
	Factory Overhead		1,440
Dec 21	Finished Goods	10,844
	Work in Process		10,844
Dec 22. a.	Accounts Receivable	9,375
	Sales		9,375
Dec 22. b.	Cost of Goods Sold	8,133
	Finished Goods		8,133
Dec 31	Work in Process	6,000
	Wages Payable		6,000
Dec 31	Work in Process	2,160
	Factory Overhead		2,160
Dec 31	Factory overhead	3,375
	Wages Expense	2,100
	Wages Payable	10,000
	Cash		15,375
	Accumulated Depreciation: Equipment		100
Dec 31	Factory Overhead	225
	Cost of Goods Sold		225

Balances as on December 31:

Materials	$ 1,500
Work in Process	11,660
Finished Goods	2,711
Factory Overhead	0
Cost of Goods Sold	7,908

Total wages expense for the month = 3 x 40 x $ 20 x 4 + 30,000 / 12 = $ 12,100