Question

The Gladden Corporation began a business as a manufacturing company on January 1, 2014. Its first fiscal year will end on December 31, 2014. Gladden uses a job-order costing system and applies manufacturing overhead cost to jobs using a predetermined overhead rate based on direct labour cost. At the beginning of 2014, the following estimates were made as a basis for computing the predetermined overhead rate for the year:

Budgeted manufacturing overhead cost for 2014: $355,200

Budgeted direct labour cost for 2014: $296,000

It is now November 30, 2014. The following information has been taken from the company’s general ledger and production information system for the year to date (i.e., as of the close of business on November 30):

Job number Total cost to date Status of Job at November 30, 2014

on job cost sheet

1 $175,200 Finished

2 $ 85,000 In Process

3 $135,700 Sold

4 $ 78,000 In Process

5 $105,600 Sold

6 $ 84,700 Finished

(“In Process” means the job is still being worked on and has not yet been finished or sold. “Finished” means the job has already been completed this year, but not yet sold. “Sold” means the job has already been completed this year, and has already been sold this year.)

The following job-related transactions took place during the month of December, 2014:

1. Raw materials requisitioned for use in production:

For Job 2: $25,000

For Job 4: $14,000

For Job 7: $13,000 (new job started on December 1, 2014)

For Job 8: $10,000 (new job started on December 2, 2014)

Indirect materials: $25,000

2. Salaries and wages incurred as follows:

For Job 2: $19,000

For Job 4: $24,000

For Job 7: $52,000

For Job 8: $18,000

Indirect labour: $21,000

Selling and administrative salaries: $ 38,000

3. Manufacturing overhead cost was applied to jobs for December as per company policy.

4. Jobs number 4 and 8 were completed and transferred to the finished goods warehouse toward the end of the month.

5. Jobs number 4 and 6 were sold at the end of the month.

Required:

1. With reference to the job cost sheets as of November 30, 2014, provided earlier in the question, determine the beginning balances for December (i.e., at the start of business on December 1, 2014) in the following accounts: Work-in-Process, Finished Goods, and Cost of Goods Sold. Show calculations or provide brief explanation as needed or appropriate. ( 2 marks)

2. Calculate the predetermined overhead rate, apply overhead to each job for the month of December, and determine the total cost of each job on each job cost sheet as of December 31, 2014. ( 7 marks)

3. Provide journal entries for the job-related transactions for the month of December outlined in information points a) through e) above. ( 6 marks)

4. Post the journal entries above as needed and determine the December 31, 2014, balances in the Work-in-Process, Finished Goods, and Cost of Goods Sold t-accounts only. ( 3 marks)

5. Demonstrate that the account balances in part 4 just above are equal to the total cost on the job cost sheets of those jobs included in each account above as of December 31, 2014. ( 2 marks)

Answer 1

1.

	Beginning Balance for December:
	Work-in-Process	Finished Goods	Cost of Goods Sold
Job 1		175200
Job 2	85000
Job 3			135700
Job 4	78000
Job 5			105600
Job 6		84700
Beginning balance	163000	259900	241300

2. Predetermined overhead rate = Budgeted manufacturing overhead cost/Budgeted direct labor cost = $355200/$296000 = 120% of direct labor cost

	Job 2	Job 4	Job 7	Job 8
Beginning balance	85000	78000	0	0
Direct materials	25000	14000	13000	10000
Direct labor	19000	24000	52000	18000
Manufacturing overhead	22800	28800	62400	21600
Total job cost	151800	144800	127400	49600

3.

Transaction	Account Titles and Explanation	Debit	Credit
a.	Work-in-process	62000
	Manufacturing overhead	25000
	Raw materials		87000
	(To record raw materials requisitioned)
b.	Work-in-process	113000
	Manufacturing overhead	21000
	Salaries expense	38000
	Salaries and wages payable		172000
	(To record salaries and wages incurred)
c.	Work-in-process	135600
	Manufacturing overhead		135600
	(To record manufacturing overhead applied)
d.	Finished goods ($144800 + $49600)	194400
	Work-in-process		194400
	(To record jobs completed and transferred)
e.	Cost of goods sold ($144800 + $84700)	229500
	Finished goods		229500
	(To record cost of jobs sold)

4.

Work-in-Process
Dec. 1 bal.	163000
Direct materials	62000	194400	Completed and transferred
Direct labor	113000
Manufacturing overhead	135600
Dec. 31 bal.	279200
Finished Goods
Dec. 1 bal.	259900
Completed	194400	229500	Cost of goods sold
Dec. 31 bal.	224800
Cost of Goods Sold
Goods sold	229500
Dec. 31 bal.	229500

Work-in-Process balance	279200
Job 2	151800
Job 7	127400
Total	279200
Finished Goods balance	224800
Job 1	175200
Job 8	49600
Total	224800
Cost of Goods Sold balance	229500
Job 4	144800
Job 6	84700
Total	229500