Question

Farm Equipment, Inc., produces tractors and other farm machinery. Each piece of equipment is built to customer specifications. During May, its first month of operations, Farm Equipment, Inc., began working on three customer orders: jobs 1, 2, and 3. The following transactions occurred during May:

• Purchased production materials on account totaling $450,000
• Processed material requisitions for the following items:
  • Job 1 direct materials $77,600
  • Job 2 direct materials $38,600
  • Job 3 direct materials $45,000
  • Indirect materials $87,000
  • Processed timesheets showing the following:

• • • Job 1 direct labor hours (700 hours) $14,800
    • Job 2 direct labor hours (550 hours) $11,800
    • Job 3 direct labor hours (300 hours) $ 6,500
    • Indirect labor $ 9,700
  • Applied overhead using a predetermined rate of 160 percent of direct labor cost
  • Completed job 1 and transferred it to finished goods
  • Delivered job 1 to the customer and billed her $140,000. (Hint: Two entries are required—one for the cost of the goods and another for the revenue.)

Required: Calculate the production costs incurred in May for each of the three jobs. (Answers must be entered as numbers only. No spaces, dollar signs, commas, decimals, etc. Example: 50000)

	Job 1	Job 2	Job 3	Total
Direct Materials	A. $	D. $	G. $	$161,200
Direct Labor	B. $	E. $	H. $	$33,100
Manufacturing Overhead	C. $	F. $	I. $	$52,960
Total Cost Per Job:	$116,080	$69,280	$61,900	$247,260

Using the previous information, make the appropriate journal entry for each item described above. Assume all payments will be made next month. You will use the following accounts at least once: Raw Materials Inventory, Accounts payable, WIP Inventory, Manufacturing Overhead, Raw Materials Inventory, Wages Payable. (Answers must be entered as numbers only. No spaces, dollar signs, commas, decimals, etc. Example: 50000)

05/01/20XX	J.	$450,000
	K.		$450,000
	Purchased Production Materials on Account

05/XX/20XX	WIP Inventory	L. $
	Manufacturing O/head	M. $
	Raw materials Inventory		$248,200
	Transfer Raw Materials into WIP

05/XX/20XX	WIP Inventory	N. $
	Manufacturing Overhead	$9,700
	Wages Payable		$42,800
	Apply labor costs to Inventory

05/01/20XX	WIP Inventory	$52,960
	Manufacturing Overhead		$52,960
	Apply Man. Overhead to Inventory costs

Answer 1

Job Cost Sheet: Direct Materials Direct Labor Mfg. Overhead Total Cost Per Job: Job 1 $77,600 $14,800 $23,680 $116,080 Job 2 $38,600 $11,800 $18,880 $69,280 Job 3 $45,000 $6,500 $10,400 $61,900 Total $161,200 $33,100 $52,960 (Ref: NOTE] $247,260 NOTE: It is given that manufacturing overhead costs are applied to jobs at 160% of direct labor cost. Accordingly mfg. overhead is applied as: Mfg. Overhead for Job 1 = $14800 x 160% = $23680; for Job 2 = $11800 x 160% = $18880; for Job 3 = $6500 x 160% = $10400.

Journal Entries: Credit $450,000 [Cost of direct materials used for Job 1, 2 & 3 as per job cost sheet] [Cost of indirect materials used] $248,200 Date Account Titles and Explanation Debit 05/01/20XX Raw materials inventory $450,000 Accounts Payable (Purchased Production Materials on Account) 05/01/20XX WIP Inventory $161,200 Manufacturing Overhead $87,000 Raw materials inventory (Transfer Raw Materials into WIP) 05/01/20XX WIP Inventory $33,100 Manufacturing Overhead $9,700 Wages Payable (Apply labor costs to Inventory) 05/01/20XX WIP Inventory $52,960 Manufacturing Overhead (Apply Man. Overhead to Inventory costs) [Cost of direct labors used for Job 1, 2 & 3 as per job cost sheet] [Cost of indirect labors used] $42,800 [Ref: Cost sheet --> Applied at 160% of direct labor cost] $52,960