Question

Mountain Manufacturing Company produces custom stamped metal parts for a variety of customers in Western Canada. During January, the company had two jobs in process. Job A was an order for 1,200 stamped parts and was started in December. Job A had $12,000 of manufacturing costs already accumulated on January 1. Job B was an order for 1,000 stamped parts and was started in January. The company used a job-order costing system. Total manufacturing overhead for the year was estimated to be $576,000. Mountain Manufacturing uses direct labour-hours as the allocation base to establish its predetermined overhead rate. A total of 19,200 direct labour-hours are expected to be worked during the year. On January 1, the start of the company’s fiscal year, inventory account balances were as follows: Raw Materials $ 15,000 Work in Process $ 12,000 Finished Goods $ 10,000 During the month of January, the following transactions were completed: Raw materials were purchased for $30,000. Raw materials were requisitioned for use in production in the amount of $35,000. Of this amount, $25,000 was related to manufacturing ($5,000 for Job A and $20,000 for Job B) and the rest were indirect materials. In January, $32,000 of direct labour ($7,000 for Job A and $25,000 for Job B). In addition, $2,000 of indirect labour costs were incurred. In January, the company incurred the following general factory costs: Utilities expense of $8,000, rent on factory equipment of $8,000, and insurance costs of $1,900. The company recognized $10,000 in depreciation on factory equipment. The company applied manufacturing overhead to Job A and Job B. A total of 350 direct labour-hours were spent completing Job A and 1,250 direct labour-hours were recorded for Job B. Administrative salaries of $30,000 were paid in January. Selling expenses totalled $6,000 in January. Job A was completed in January. The completed cost of Job A according to the job cost sheet was $34,500. Job B remains in process at the end of January. Sales of all 1,200 units in Job A were recorded on account in the amount of $48,300 in January. Required: 1. Prepare journal entries to record the transactions for January. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Prepare T-accounts. Determine ending balances in the inventory accounts and in the Manufacturing Overhead account. 3. Prepare a schedule of cost of goods manufactured. 4a. Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 4b. Determine the adjusted Cost of Goods Sold. 5. Prepare an income statement for the month of January.

Answer 1

1)

	Journal Entries:	Debit	Credit
1	Raw Material Inventory	$30,000
	cash		$30,000
	(Raw material purchased)
2	Work in Process-Job A	$5,000
	Work in Process-Job B	$20,000
	Raw Material Inventory		$25,000
	(Record Direct material used)
3	Manufacturing Overhead	$10,000
	Raw Material Inventory		$10,000
	(Record indirect material used)
4	Work in Progress- Job A	$7,000
	Work in Progress- Job B	$25,000
	Cash		$32,000
	(Record direct labour used)
5	Manufacturing Overhead	$2,000
	Cash		$2,000
	(Record indirect labour used)
6	Manufacturing Overhead	$17,900
	Cash		$17,900
	(Record Utilities exp $8000, rent on factory equipment $8000
	and insurance cost $1900)
7	Manufacturing Overhead	$10,000
	Accumulated Depreciation-Factory Equipment		$10,000
	(Depreciation expense on factory equipment)
8	Work in Progress- Job A	$10,500
	Work in Progress- Job B	$37,500
	Manufacturing Overhead		$48,000
	(Record overhead applied)
	Working: Calculation of overhead
	Total Manufacturing Overhead	$576,000
	Total Direct labour hours	19200
	Therefore Manufacturing overhead per hour
	=$576000/19200
	=$30 per labour hour
	Job -A spend 350 Direct labour hour
	so, we could charge Overhead of $10500 (350 hours * $30)
	Job-B spend 1250 Direct labour hours
	so, we could charge Overhead of $37500 (1250 hours * $30)
9	Adminsitrative Salaries	30000
	Cash		30000
10	Selling Expenses	$6,000
	cash		$6,000
	(Salary expense recorded)
11	Finished Goods Inventory	$34,500
	work in process- Job A		$34,500
	(Record Completion of Job A)
12	Accounts Receivable	$48,300
	Sale		$48,300
	(Record sale of Job-A for $48300 on account)
13	Cost of Goods Sold	$34,500
	Finished Goods Inventory		$34,500
	(Record total cost of Job-A now sold)