Question

PROBLEM 3-7 ACCOUNTING 232 JOB ORDER COSTING Product- DIRECT MATERIALS - QUANTITY PER UNIT $20.00 200 UNIT COST TOTAL UNIT MATERIAL COST 20 PRODUCT LABOR HOURS PER UNIT $10.00 I 200 LABOR RATE PER HOUR TOTAL UNIT LABOR COST 1 54 APPLIED MANUFACTURING OVERHEAD UNIT COST TOTAL PRODUCT COST 1454 15.000 [1362 QUANTITY TO BE PRODUCED SELLING PRICE - THREE TIMES UNIT COST MANUFACTURING OVERHEAD COST: 6. DEPRECIATION 7. UTILITIES 8. SUPPLIES 9. TAXES 10. INSURANCE $350,000 50,000 200,000 100,000 100,000 ESTIMATED TOTAL COST $800,000 ESIMATED TOTAL LABOR HOURS PREDERTERMINED OH RATE 300,000 214 Page

Total Unit Material Cost- 200

Total Unit Labor Cost -200

Applied Manfacturing OverheadUnit Cost -54

Total Product Cost - 454

Selling Price - 1362

Predetermined Overhead Rate -2.7

Answer 1

Part 1: Journal Entries

Cash	Dr	3,200,000
To Shares			3,200,000
Raw Material	Dr	3,300,000
To Accounts Payable			3,300,000
WIP	Dr	3,000,000
To Raw Material			3,000,000
Labour Expenses	Dr	3,000,000
To Labour Charges Payable			3,000,000
Asset (Depreciation)		280,000
To Cash			280,000
WIP	Dr	800,000
To Manufacturing OH Payable			520,000
To Asset (Depreciation)			280,000
WIP	Dr	3,000,000
To Labour Expenses			3,000,000
Finished Goods	Dr	6,800,000
To WIP			6,520,000
Debtors	Dr	19,040,000
To Sales			19,040,000
Cost of Goods Sold	Dr	6,346,667
To Finished goods			6,346,667
Manufacturing OH Payable	Dr	300000
To Cash			300,000
Manufacturing OH Payable	Dr	220,000
To OH Over Applied			220,000
Selling Expenses	Dr	1,904,000
To Cash			1,904,000
Office Expenses	Dr	1,000,000
To Cash			1,000,000

Part 2: Ledgers

Cash/Bank
Particulars	Dr	Particulars	Dr
To Shares	$                     3,200,000	By Manufacturing OH Payable	$                        300,000
		By Selling Expenses	$                     1,904,000
To Balance#1	$                        284,000	By Office Expenses	$                     1,000,000
		By Asset (Depreciation)#2	$                        280,000
	$                     3,484,000		$                     3,484,000
Cost of Goods Sold
Particulars	Dr	Particulars	Dr
To Finished goods	$                     6,346,667	By Balance	$                     6,346,667
	$                     6,346,667		$                     6,346,667
Debtors
Particulars	Dr	Particulars	Dr
To Sales	$                  19,040,000	By Balance	$                  19,040,000
	$                  19,040,000		$                  19,040,000
Finished Goods
Particulars	Dr	Particulars	Dr
To WIP	$                     6,800,000	By Cost of Goods Sold	$                     6,346,667
		By Balance	$                        453,333
	$                     6,800,000		$                     6,800,000
Labour Expenses
Particulars	Dr	Particulars	Dr
To Labour Charges Payable	$                     3,000,000	By WIP	$                     3,000,000
	$                     3,000,000		$                     3,000,000
Office Expenses
Particulars	Dr	Particulars	Dr
To Cash	$                     1,000,000	By Balance	$                     1,000,000
	$                     1,000,000		$                     1,000,000
Raw Material
Particulars	Dr	Particulars	Dr
To Accounts Payable	$                     3,300,000	By WIP A/c	$                     3,000,000
		By Balance	$                        300,000
	$                     3,300,000		$                     3,300,000
Selling Expenses
Particulars	Dr	Particulars	Dr
To Cash	$                     1,904,000	By Balance	$                     1,904,000
	$                     1,904,000		$                     1,904,000
Accounts Payable
Particulars	Dr	Particulars	Dr
To Balance	$                     3,300,000	By Raw Material	$                     3,300,000
	$                     3,300,000		$                     3,300,000
Asset (Depreciation)
Particulars	Dr	Particulars	Dr
To Cash	$                        280,000	By WIP	$                        280,000
	$                        280,000		$                        280,000
Labour Charges Payable
Particulars	Dr	Particulars	Dr
To Balance	$                     3,000,000	By Labour Expenses	$                     3,000,000
	$                     3,000,000		$                     3,000,000
Manufacturing OH Payable
Particulars	Dr	Particulars	Dr
To Cash	$                        300,000	By WIP	$                        520,000
To OH Over Applied	$                        220,000
	$                        520,000		$                        520,000
OH Over Applied
Particulars	Dr	Particulars	Dr
To Balance	$                        220,000	By Manufacturing OH Payable	$                        220,000
	$                        220,000		$                        220,000
Sales
Particulars	Dr	Particulars	Dr
To Balance	$                  19,040,000	By Debtors	$                  19,040,000
	$                  19,040,000		$                  19,040,000
Shares
Particulars	Dr	Particulars	Dr
To Balance	$                     3,200,000	By Cash	$                     3,200,000
	$                     3,200,000		$                     3,200,000
WIP
Particulars	Dr	Particulars	Dr
To Raw Material	$                     3,000,000	By Finished goods	$                     6,800,000
To Manufacturing OH Payable	$                        520,000
To Asset (Depreciation)	$                        280,000
To Labour Expenses	$                     3,000,000
	$                     6,800,000		$                     6,800,000

#1: Since, the cash receipts is less than the cash payments, the closing balance is assumed to Bank Overdraft (Line of Credit).

#2: The depreciaion is usually to be deducted from cost of the asset, but since, no prior data is provided, it is assumed that asset is purchased of amount equal to that of depreciation. It will change as per other available data.

Part 3: Trial Balance

Trial Balance
Particulars	Dr	Particulars	Cr
Cost of Goods Sold	6,346,667	Cash/Bank	284,000
Debtors	19,040,000	Accounts Payable	3,300,000
Finished Goods	453,333	Labour Charges Payable	3,000,000
Labour Expenses	1,000,000	OH Over Applied	220,000
Raw Material	300,000	Sales	19,040,000
Selling Expenses	1,904,000	Shares	3,200,000
TOTAL	29,044,000	TOTAL	29,044,000

Part 4: Statement of Cost of Manufacturing

Statement of Cost of Manufacturing
	Unit Reqd.	Price per Unit	Per Unit Cost	Total Cost of 15,000 units
Material	$                     10.00	$                     20.00	$                                    200.00	$                        3,000,000.00
Labour	$                     20.00	$                     10.00	$                                    200.00	$                        3,000,000.00
Overhead Applied #1	$                     20.00	$                       2.67	$                                      53.33	$                           800,000.00
			$                                    453.33	$                        6,800,000.00

#1: Calculation of OH applied Rate

Particulars	USD
Depreciation	$               350,000
Utilities	$                 50,000
Supplies	$               200,000
Tax	$               100,000
Insurance	$               100,000
	$               800,000
Labour houes	$               300,000
OH rate per Labour Hour	$                      2.67

Part 5: Cost of Goods Sold Statement

Statement of Cost of Goods Sold
	Units Reqd.	Price per unit	Per Unit	Units Sold - 14,000
Material	$                     10.00	$                     20.00	$                                    200.00	$                              2,800,000
Labour	$                     20.00	$                     10.00	$                                    200.00	$                              2,800,000
Overhead Applied	$                     20.00	$                       2.67	$                                      53.33	$                                 746,667
			$                                    453.33	$                              6,346,667

Part 6: Income Statement

Particulars	$
Sales	$              19,040,000
OH Over Applied	$                    220,000
	$              19,260,000
Less:
Cost of Goods Sold	$                6,346,667
Labour Expenses	$                1,000,000
Selling Expenses	$                1,904,000
	$                9,250,667
Net Income	$              10,009,333

Part 7: Statement of Retained Earning

Particulars	$
Opening Balance	-
Add: Profit and the year	10,009,333
Closing Balance	10,009,333

Part 8: Balance Sheet of the year

Balance Sheet
Assets	$	Equity and Liabilities	$
Debtors	$           19,040,000	Cash/Bank (Credit)	$                 284,000
Finished Goods	$                 453,333	Accounts Payable	$             3,300,000
Raw Material	$                 300,000	Labour Charges Payable	$             3,000,000
		Shares	$             3,200,000
		Retained Earnings	$           10,009,333
	$           19,793,333		$           19,793,333