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Mastery Problem: Job Order Costing Purl of Great Price Company Maria Young is the sole stockholder...

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 $

Solutions

Expert Solution

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

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Mastery Problem: Job Order Costing Purl of Great Price Company Maria Young is the sole stockholder...
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...
Mastery Problem: Job Order Costing Purl of Great Price Company Maria Young is the sole stockholder...
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