Question

You work for Thunderduck Custom Tables Inc. This is the first month of operations. The company designs and manufactures specialty tables. Each table is specially customized for the customer. This month, you have been asked to develop and manufacture two new tables for customers. You will design and build the tables. This is a no nail, no screw, and no glue manufacturing ( no indirect materials used). You will be keeping track of the costs incurred to manufacture the tables using Job #1 Cost Sheet and Job #2 Cost Sheet.
	The cost of the direct materials that can be used to manufacture the table are as follows. These cost are on a per unit basis.
		Table Top	$2,800.00
		Table Leg	$1,050.00
		Drawer	$480.00
	The company uses a job order costing system and applies manufacturing overhead to jobs based on direct labor hours.
	The company estimates that there will be 12 direct labor hours worked during the month.
	The estimated manufacturing overhead cost for the month is:
	a.	Factory supervisor salary per month	$4,000.00
	b.	Rent for the factory per month	$1,400.00
	c.	Depreciation of factory equipment per month	$600.00
		Total Estimated manufacturing overhead	$6,000.00
	What is the predetermined manufacturing overhead rate?
Step 2	The first order you received was to manufacture a table using a table top and four legs. This is your Job #1.
Step 3	The customer that has ordered Job #2, wants a table that is the same as Job #1, but wants to also add a drawer to the table.
Step 4	The following is a list of transactions that need to be recorded for the company for activity in the month of December. Record those in the "General Journal" tab of the excel file using the proper format. Please use the following accounts: Accounts Receivables, Raw materials, Work in process, Finished goods, Accumulated depreciation, Accounts payable, Salaries and wages payable, Sales revenue, Manufacturing overhead, Cost of goods sold, Salaries and wages expense, Advertising expenses, and Depreciation expense.
1-Dec	Raw Materials purchased on account, $28,000.
5-Dec	All Raw Materials needed for Job #1 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #1 Cost Sheet)
10-Dec	The following employee costs were incurred but not paid during the month:
	There are three assembly employees that spend 2 hours each, $30 per hour to make the table for Job #1. (After you journalize this entry please enter the information into Job #1 Cost Sheet)
	Salary for supervisor of the factory $4,500.
	Administrative Salary $2,000.
15-Dec	All Raw Materials needed for Job #2 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
16-Dec	Rent for the month of December for the factory building incurred but not paid $1,400.
17-Dec	Advertising costs incurred but not paid for the month was $1,200.
20-Dec	Depreciation for the month of December was recorded on equipment was $750 ($150 for equipment used in the factory and the remainder for equipment used in selling and administrative activities).
22-Dec	Manufacturing overhead cost was applied based on direct labor hours to Job #1 based on the POHR determined on the "Job Cost Sheet". (After you journalize this entry please enter the information into Job #1 Cost Sheet)
26-Dec	Job #1 was completed and transferred to Finished Goods during the month.
28-Dec	The completed table from Job #1 was sold on account to the customer for $33,000 during the month. (Hint: Make sure to account for the cost of the table that was sold using the cost from the job cost sheet.)
31-Dec	Direct labor cost incurred but not paid for three employees to start manufacturing Job #2. The employees only worked one hour each, three hours total, $30 per hour during the month and they did not complete their work on the job. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
31-Dec	Manufacturing overhead cost was applied based on direct labor hours to Job #2 based on the POHR. Only three direct labor hours were worked on Job #2 during the month. (After you journalize this entry please enter the information into Job #2 Cost Sheet)
31-Dec	Any underapplied or overapplied overhead for the month was closed out to Cost of Goods Sold.
Step 5	Post the journal entries that you recorded on the "General Journal" tab to the "T-accounts" tab. This is the company's first month of business, so there will not be any beginning balances. Compute the balance for each T-account after all of the entries have been posted.
Step 6	Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold on the "Schedule of COGM and COGS" tab for Job #1 and Job #2 that were worked on during the month by the company. Make sure to follow the format noted in your book (pg. 87). (Hint: This is the company's first month of operations and therefore the beginning balances will be zero.)
Step 7	Prepare an Income Statement for the month using the Traditional Format on the "Income Statement" tab.
Step 8	Answer the additional questions below
	Check Figure: Cost of Goods Manufactured= $10,180, Net operating income=$17,470
	What is the ending balance for raw materials?
	What is the ending balance for work in process?
	What is the ending balance for finished goods?
	What is the actual manufacturing overhead cost incurred during December before adjustment?
	What is the total applied manufacturing overhead cost during December before adjustment?
	What is the unadjusted cost of goods sold?
	Was the manufacturing overhead for the month of December overapplied/underapplied ?
	What is the amount of Manufacturing overhead overapplied/underapplied?
	What is the adjusted cost of goods sold?
	What is gross margin?
	What is the total prime cost for Job#1?
	What is the total conversion cost for job #1?
	What is the total product cost for job#1?
	What was the period cost incurred for the month of December?
	What is the total variable cost incurred for Job #1(assume that all selling and administrative cost and all manufacturing overhead costs are fixed.)?
	What is the contribution margin for Job #1 (assume that all selling and administrative cost and all manufacturing overhead costs are fixed.)?
	What would be the actual (not applied) total fixed manufacturing overhead cost incurred for the company for the month if the order in Job #1 is for five tables instead of one table assuming this cost is with in the relevant range?

Answer 1

Predetermined manufacturing overhead rate = Total estimated manufacturing overhead / Total direct labor hours = $ 6,000 / 12 = $ 500 per direct labor hour.

Cost Sheet: Job # 1

	$	$
Direct Material Cost	$ 2,800 + $ 1,050 x 4	7,000
Direct Labor	$ 30 x 3 x 2	180
Manufacturing Overhead	$ 500 x 3 x 2	3,000
Total Manufacturing Cost		10,180

Cost Sheet : Job # 2

	$	$
Direct Material Cost	$ 7,000 +$ 480	7,480
Direct Labor Cost	3 x 1 x 30$	90
Manufacturing Overhead	3 x 1 x 500$	1,500
Total Manufacturing Cost		9,070

Journal:

Date	Account Titles	Debit	Credit
		$	$
Dec 1	Raw Materials	28,000
	Accounts Payable		28,000
Dec 5	Work in Process - Job # 1	7,000
	Raw Materials		7,000
Dec 10	Work in Process - Job # 1	180
	Manufacturing Overhead	4,500
	Salaries and wages expense	2,000
	Salaries and wages payable		6,680
Dec 15	Work in Process - Job # 2	7,480
	Raw Materials		7,480
Dec 16	Manufacturing Overhead	1,400
	Accounts Payable		1,400
Dec 17	Advertising expense	1,200
	Accounts payable		1,200
Dec 20	Manufacturing Overhead	150
	Depreciation Expense	600
	Accumulated Depreciation - Equipment		750
Dec 22	Work in Process - Job # 1	3,000
	Manufacturing Overhead		3,000
Dec 26	Finished Goods	10,180
	Work in Process - Job # 1		10,180
Dec 28	Accounts Receivable	33,000
	Cost of Goods Sold	10,180
	Sales		33,000
	Finished Goods		10,180
Dec 31	Work in Process - Job # 2	90
	Salaries and wages payable		90
Dec 31	Work in Process - Job # 2	1,500
	Manufacturing Overhead		1,500
Dec 31	Cost of Goods Sold	1,550
	Manufacturing Overhead		1,550

Contribution Margin for job # 1 = Selling Price - Variable Cost = $ 33,000 - $ 10180 = $ 22,820

Step 6:

Schedule of Cost of Goods Manufactured
Beginning Work in Process		$ 0
Raw Materials used in production
Beginning Raw Materials	$ 0
Purchase of Raw Materials	28,000
Raw Materials, ending balance	(13,520)	14,480
Direct Labor		180
Manufacturing Overhead Applied		4,500
Total Manufacturing Costs		19,160
Less: Ending Work in Process		(8,960)
Cost of Goods Manufactured		$ 10,180

Schedule of Cost of Goods Sold
Beginning Finished Goods	$ 0
Add: Cost of Goods Manufactured	10,180
Cost of Goods Available for Sale	10,180
Less: Ending Finished Goods	0
Cost of Goods Sold (in adjusted)	10,180
Add: Manufacturing Overhead Under applied	1,550
Cost of Goods Sold ( Adjusted)	$11,730

Step 7 :

Thunderduck Customs Tables Inc.
Income Statement
For the month ended December 31
Sales Revenue		$ 33,000
Cost of Goods Sold		$11,730
Gross Profit		$ 21,270
Selling and Administrative Expenses
Advertising Expense	1,200
Salaries and Wages Expense	2,000
Depreciation Expense	600
Total Selling and Administrative Expense		(3,800)
Net Operating Income		$17,470