Question

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	$42,000
Estimated office utilities	$3,000
Estimated factory utilities	$4,800
Estimated factory rent	$24,000

Activity Base Data
Estimated number of DLH for the year	5,000
Estimated number of MH for the year	3,500

Compute the predetermined factory overhead rate for the current year.

$10.20 per DLH

Feedback

Review the definitions of items that are included in factory overhead for the computation of estimated total factory overhead costs.

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	$15	$975
12/16-12/31	83	103	15	1,545
			Total Cost	$2,520

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	$1,125
12/16-12/31	83	88	15	1,320
			Total Cost	$2,445

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	$900
12/16-12/31	83	109	15	1,635
			Total Cost	$2,535

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	$	$	$	$

Feedback

Recall that the factory overhead is applied for this company using direct labor hours (DLH).

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

Feedback

Think about the flow of costs incurred to do a job and the accounts affected by sales to customers.

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	Cost of Goods Sold
	Factory Overhead

Feedback

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

1	Factory overhead rate
	= total estimated factory overheads/ estimated direct labor hours
	=75000/5000
	=15 per direct labor hour
	= total estimated factory overheads/ estimated direct labor hours
	=51000/5000
	=10.20 per direct labor hour
	(if factory rent is considered directly linked to production
	Particulars	Amount	Amount
	Est depreciation	1200	1200
	office manager wages	42000	42000
	office utilities	3000	3000
	factory utilities	4800	4800
	factory rent	24000
	Total	75000	51000

2	Factory overhead rate is considered at 10.20 $ per DLH as given in the question
	Job 62
		units/hours	Price	Total
	Labor	65	15	975
		75	15	1125
		60	15	900
	Factory o/h as given in the question rate per DLH	200	10.2	2040
		Direct Materials	Direct Labor	Factory overhead	Total
	Op balance Dec 1	5000	300	104	5404
	From Dec 1 to Dec 15	0	3000	2040	5040
	Total cost				10444
	Units				100
	Unit cost				104.44
	Job 83	200 vests
		units/hours	Price	Total
	Labor	103	15	1545
		88	15	1320
		109	15	1635
	Material	700	5	3500
	Factory o/h as given in the question rate per DLH	300	10.2	3060
		Direct Materials	Direct Labor	Factory overhead	Total
	Op balance Dec 1	0	0	0	0
	From Dec 1 to Dec 15	3500	4500	3060	11060
	Total cost				11060
	Units				200
	Unit cost				55.3

4	Journal entries
	Particulars	Amount (DR)	Amount(CR)
Dec-10	Work In Progress   Dr	3500
	Material		3500
	(being materials issued to work in progress)
Dec-15	Work In Progress       Dr	3000
	Direct Labor		975
	Direct Labor		1125
	Direct Labor		900
	(being direct labor assigned to work in progress)
Dec-15	Work In Progress       Dr	2040
	Factory overhead		2040
	(being factory overheads at $ 10.20 assigned to work in progress)
Dec-21	Finished goods    Dr	10444
	Work in progress		10444
	(being job 62 assigned to finished goods inventory)
Dec-22	Accounts Receivable    Dr	9375
	Sales		9375
	Cost of goods sold   Dr	7833
	Finished goods		7833
Dec-31	Work in progress    Dr	4500
	Wages Payable		4500
	(being direct labor assigned to work in progress)
	Work In Progress       Dr	3060
	Factory overhead		3060
	(being factory overheads at $ 10.20 assigned to work in progress)
Dec-31	Factory overhead	3275
	Wages expense	6250
	Equipment depreciation	100
	cash		9525
	Accumulated depreciation		100
	(being costs paid)
Dec-31	Cost of godds sold    Dr	1150
	Factory overhead		1150
	(being underapplied factory overheads transferred to COGS)

5	Balances
	Materials	Amount
	As on Nov 30	5000
	Less issued to WIP Job 83	-3500
	Balance as on Dec 31	1500
	Work In Progress
		Factory o/h at $ 10.20 DLH	Factory o/h at $ 15 DLH
	As on Nov 30	5404	5404
	Less Transferred to finished goods	-5404	-5404
	Added in Dec	11060	12500
	Balance as on Dec 31	11060	12500
	Finished Goods
		Factory o/h at $ 10.20 DLH	Factory o/h at $ 15 DLH
	As on Nov 30	0	0
	Less Transferred to finished goods	0	0
	Added in Dec	2611	2851
	Balance as on Dec 31	2611	2851
	Factory Overheads
		Factory o/h at $ 10.20 DLH	Factory o/h at $ 15 DLH
	As on Nov 30	-15	-15
	Applied overheads	5100	7500
	Actual factory overhead	-6250	-6250
	Less: overapplied
	Balance as on Dec 31	-1165	1235
	Cost of Goods sold
		Factory o/h at $ 10.20 DLH	Factory o/h at $ 15 DLH
	As on Nov 30	255040	255040
	Added in Dec	7833	8553
	Factory o/h added	-1150	1250
	Balance as on Dec 31	261723	264843