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 $1,000 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. CHART OF ACCOUNTS POGP Company General Ledger ASSETS 110 Cash 112 Accounts Receivable 117 Supplies 118 Materials 119 Work in Process 120 Finished Goods 125 Equipment 126 Accumulated Depreciation-Equipment LIABILITIES 210 Accounts Payable 211 Wages Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary REVENUE 410 Sales EXPENSES 510 Cost of Goods Sold 520 Factory Overhead 525 Wages Expense 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 n330,490.00 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 $1,200.00 Estimated total Office Manager/Knitting Supervisor wages $30,000.00 Estimated office utilities $3,000.00 Estimated factory utilities $4,800.00 Estimated factory rent $12,000.00 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. A. 9.60 per dlh B.6.60 per dlh C.10.20 D. another amount per dlh E. 9.43 per dlh 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 $20.00 $1,300.00 12/16-12/31 83 103 $20.00 $2,060.00 Total Cost $3,360.00 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 $20.00 $1,500.00 12/16-12/31 83 88 $20.00 $1,760.00 Total Cost $3,260.00 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 $20.00 $1,200.00 12/16-12/31 83 109 $20.00 $2,180.00 Total Cost $3,380.0 Answer job cost sheets 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 Journal Journalize the entries in requirements 2 - 8. Refer to the Chart of Accounts for exact wording of account titles. Final question 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

1. Predetermined factory overhead rate for POGP Company
Factory Overheads
Estimated depreciation on equipment	$1,200
Estimated total office manager/knitting supervisor wages	$30,000
Estimated office utilities	$3,000
Estimated factory utilities	$4,800
Estimated factory rent	$12,000
Total Factory overheads	$51,000
Estimated number of DLH for the year	5,000
Predetermined factory overhead rate = factory overheads/DLH for the year
= $51000/5000
= $10.20 per DLH
2 A. Journal entry to record the addittion of the materials to Work in process
Work in Process	$5,000
Materials		$5,000
3 A. Journal entry to record the addition of direct labour to Work in Process for the period December 1 through December 15
Work in process	$4,000
Wages payable		$4,000
(Wages for all the three employees)
3 B. Journal entry to record the addition of factory overheads to Work in Process for the period December 1 through December 15
Work in Process	$2,040
Factory Overhead		$2,040
Note:
Total hour worked by all the three employees = 200 DLH
Predetermined factory overhead rate = $10.20
Factory overheads = 200 x 10.20 = $2040
4. Journal entry to move the associated costs for Job 62 to the finished goods account
Finished Goods	$11,444
Work in Process		$11,444
5 A. Journal entry to record the sale
Accounts receivable	$9,375
Sales		$9,375
Sales = 75 units x $125 each = $9375
5 B. Journal entry to record transfer of costs from Finished goods to Cost of Goods Sold
Cost of Goods Sold	$8,583
Finished Goods		$8,583
Cost of Goods Sold = $114.44 x 75 units = $8583
6 A. Journal entry to record the addition of direct labour to Work in Process for the period December 16 through December 31
Work in process	$6,000
Wages payable		$6,000
(Wages for all the three employees)
6 B. Journal entry to record the addition of factory overheads to Work in Process for the period December 16 through December 31
Work in Process	$3,060
Factory Overhead		$3,060
Note:
Total hour worked by all the three employees = 300 DLH
Predetermined factory overhead rate = $10.20
Factory overheads = 300 x 10.20 = $3060
7 A. Journal entry to record the one months depreciation on equipment
Depreciation	$100
Accumulated Depreciation-Equipment		$100
Cost of 3 knitting machines (2400 x 3)	$7,200
Cost of packaging machine	$4,800
Total	$12,000
Depreciation for a year (12000/10years)	$1,200
Depreciation for a month (1200/12 months)	$100
7 B. Journal entry for one month's payroll all employees
Wages expenses	$1,250
Wages payable	$10,000
Factory overhead	$1,250
Cash		$12,500
Wages expenses for office manager = ($30000/12)/2 = $1250
Knitting supervisor wages $1250 will be debited to Factory overhead as it is related to the product.
7 C. Journal entry for one month's rent
Factory overhead	$1,000
Cash		$1,000
7 D. Journal entry to record one month's utilities
Factory overhead	$1,275
Cash		$1,275
8. Journal entry to dispose of the balance in the factory overhead account
Factory overhead	$1,590
Cost of Goods sold		$1,590
9. Balances in the following accounts as of December 31
A. Materials	$0
B. Work in Process	$14,060
C. Finished Goods	$2,861
D. Factory Overhead	$0
E. Cost of Goods Sold	$262,033
Job Cost Sheet
Job 62	100 units	Sweaters
	Direct Materials	Direct Labour	Factory Overhead	Total
Balance Dec. 1	$5,000	$300	$104	$5,404
Dec. 15		$4,000	$2,040	$6,040
Total Cost				$11,444
			Unit Cost	$114.44
Job 83	200 units	Sweater Vests
	Direct Materials	Direct Labour	Factory Overhead	Total
Balance Dec. 1	$0	$0	$0	$0
Dec. 10	$5,000			$5,000
Dec. 31		6000	3060	$9,060
Total Cost				$14,060