Exercise: On April 1, Rowand Company is working on two jobs, A and B. Job A cont

Question

Exercise:

On April 1, Rowand Company is working on two jobs, A and B. Job A contains 1000 units and Job B contains 500 units.

The cost sheet shows $30,000 balance in job A, where job B has $0 balance on April 1.

The company used to apply overhead on the basis of direct labor costs. The company estimates annual overhead costs will be $792,000, and annual direct labor costs will be $900,000.

At the beginning of April, the company had $7,000 in raw materials on hand. During the month, the company purchased $60,000 raw materials.

During April, $52,000 in raw materials were requisitioned from the storeroom for use in production. These raw materials include $50,000 direct materials, and 2,000 indirect materials were applied. (Of these direct raw materials, $28,000 was issued for job A and $22,000 for job B).

April’s payroll sheets show $55,000 wages payable and $20,000 relates to payroll taxes payable.

Various time tickets show that $60,000 direct labor ($42,000 job A and $18,000 job B), and $15,000 indirect labor were assigned.

Expenses during Aprils were as follows:

            Utilities (heat, water, and power)      $41,000

            Rent on factory equipment                 31,200

            Miscellaneous factory costs                   5,800

            Total                                                    $78,000

Job A was completed at the end of April and shipped to the customer for total sales revenue of $225,000.

Required:

Prepare journal entries to record the preceding transactions and post to the proper account.

Show the job cost sheet for each job.

Prepare the cost of manufacturing schedule and the income statement at the end of April.

Explanation / Answer

Working note

Overhead for Job A =95000x(42000/60000)

Journal Entries 1 Raw Material Inventory $    60,000     Accounts Payable $    60,000 (To record purchase of raw material) 2 WIP inventory Job A $    28,000 WIP inventory Job B $    22,000 Manufacturing Overhead $      2,000    Raw Material Inventory $    52,000 (To record raw material requisitioned) 3 Factory Labour $    75,000     Factory wages payable $    55,000     Payroll taxes payable $    20,000 (To record Payroll) 4 WIP inventory Job A $    42,000 WIP inventory Job B $    18,000 Manufacturing Overhead $    15,000      Factory Labour $    75,000 (To record Direct and indirect labour cost) 5 Utilities $    41,000 Rent on Factory equipment $    31,200 Misc. Factory costs $      5,800        Cash $    78,000 (To record manufacturing overheads) 6 Accounts receivable $ 225,000     Sales $ 225,000 (To record Job A sales revenue) Job Cost Sheet for Job A Particulars Amount Beginning WIP $30,000 Direct material $28,000 Direct Labour $42,000 Manufacturing Overhead $66,500 Total Cost $166,500 Job Cost Sheet for Job B Particulars Amount Beginning WIP $0 Direct material $22,000 Direct Labour $18,000 Manufacturing Overhead $28,500 Total Cost $68,500 Cost of Manufacturing Schedule for the month of April Materials Cost: Beginning Raw material Inventory 7000 Raw materials purchased 60000 Indirect material used -2000 Ending Raw material inventory -15000            Total Raw materials used 50000 Direct Labour cost: 60000 Overhead Costs: Indirect materials 2000 Indirect labour 15000 Utilities 41000 Rent on Factory Equipment 31200 Misc. Factory Costs 5800             Total overhead Costs 95000             Total manufacturing cost 205000 Beginning work in progress inventory 30000 Cost of Goods Manufactured 235000 Ending WIP inventory for Job B 68500 Cost of Goods sold 166500 Income Statement for the month of April Sales $225,000 Less: Cost of Goods sold $166,500 Gross Profit $58,500

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