Mastery Problem: Job Order Costing
Purl of Great Price Company
Maria Young is the sole stockholder of Purl of Great PriceCompany (POGP Company), which produces high-end knitted sweatersand sweater vests for sale to retail outlets. The company startedin January of the current year, and employs three knitters (each ofwhom work 40 hours per week) and one office manager/knittingsupervisor (this employee works 20 hours per week as officemanager, and 20 hours per week as knitting supervisor). All wagesare paid in cash at the end of each month.
Each knitter has a knitting machine that is used about 2/3 ofthe knitter’s time, the rest of the knitter’s time being involvedin hand knitting and piecing together the garments. The companyalso has a packaging machine used to wrap the garments in plasticfor shipping, which is operated by the office manager/knittingsupervisor approximately 5 hours per week.
The knitting machines were purchased on January 1 of the currentyear, and cost $2,400 each, with an anticipated useful life of 10years and no salvage value. The packaging machine was purchased onthe same date and cost $4,800, with the same anticipated usefullife and salvage value.
Nov. 30 Trial Balance
POGP Company
Trial Balance
November 30, 20Y8 |
| Account Title | Debit | Credit |
| Cash | 20,000 | |
| Accounts Receivable | 1,000 | |
| Supplies | 200 | |
| Materials | 5,000 | |
| Work in Process | 5,404 | |
| Equipment | 12,000 | |
| Accumulated Depreciation-Equipment | | 825 |
| Accounts Payable | | 150 |
| Common Stock | | 10,000 |
| Retained Earnings | | 12,000 |
| Dividends | 18,096 | |
| Sales | | 307,500 |
| Cost of Goods Sold | 255,040 | |
| Factory Overhead | | 15 |
| Wages Expense | 13,750 | |
| 330,490 | 330,490 |
Predetermined Factory Overhead Rate
Since the company is more reliant on labor than machines, Mariadecides to use direct labor hours (DLH) as the activity base forher predetermined factory overhead rate, rather than machine hours(MH).
| Estimated Selected Amounts for the Year | |
| Estimated depreciation on equipment | $1,200 |
| Estimated total Office Manager/Knitting Supervisor wages | $42,000 |
| Estimated office utilities | $3,000 |
| Estimated factory utilities | $4,800 |
| Estimated factory rent | $24,000 |
| Activity Base Data | |
| Estimated number of DLH for the year | 5,000 |
| Estimated number of MH for the year | 3,500 |
Compute the predetermined factory overhead rate for the currentyear.
$10.20 per DLH
Feedback
Review the definitions of items that are included in factoryoverhead for the computation of estimated total factory overheadcosts.
| Materials Requisition | | | Date: Dec. 10 |
| Req. No. 12255 | Job No. 83 | | |
| Description | Qty. Issued | Unit Price | Amount |
| Yarn type B | 700 skeins | $5 | $3,500 |
| | Total issued | $3,500 |
| Time Ticket | No. 1255 | Name: | Susan Blake | |
| Work Description: | Knitting/piecing | | | |
| Dates | Job No. | Hours Worked | Unit Price | Amount |
| 12/01-12/15 | 62 | 65 | $15 | $975 |
| 12/16-12/31 | 83 | 103 | 15 | 1,545 |
| | | Total Cost | $2,520 |
| Time Ticket | No. 2274 | Name: | Josh Porter | |
| Work Description: | Knitting/piecing | | | |
| Dates | Job No. | Hours Worked | Unit Price | Amount |
| 12/01-12/15 | 62 | 75 | $15 | $1,125 |
| 12/16-12/31 | 83 | 88 | 15 | 1,320 |
| | | Total Cost | $2,445 |
| Time Ticket | No. 3923 | Name: | Mary Jones | |
| Work Description: | Knitting/piecing | | | |
| Dates | Job No. | Hours Worked | Unit Price | Amount |
| 12/01-12/15 | 62 | 60 | $15 | $900 |
| 12/16-12/31 | 83 | 109 | 15 | 1,635 |
| | | Total Cost | $2,535 |
Job Cost Sheets
On December 10, POGP Company receives an order for 200 sweatervests and assigns Job 83 to the order. Review the MaterialsRequisition table to add the materials to the Job Cost Sheet forJob 83.
On December 15, review the Time Ticket tables to add theappropriate amount of direct labor and factory overhead costs tothe Job Cost Sheet for Job 62 for the period December 1 throughDecember 15.
On December 31, the last work day of the year for the knitters,review Time Ticket tables to add the appropriate amount of directlabor and factory overhead costs to the Job Cost Sheet for Job 83for the period December 16 through December 31.
If there is no amount or an amount is zero, enter "0". Ifrequired, round your answers to the nearest cent.
| Job 62 | 100 units: | Sweaters | | |
| Direct Materials | Direct Labor | Factory Overhead | Total |
| Balance Dec. 1 | $5,000 | $300 | $104 | $5,404 |
| Dec. 15 | | | | |
| Total Cost | $ | $ | $ | $ |
| | | Unit Cost | $ |
| Job 83 | 200 units: | Sweater vests | | |
| Direct Materials | Direct Labor | Factory Overhead | Total Job Cost |
| Balance Dec. 1 | $0 | $0 | $0 | $0 |
| Dec. 10 | | | | |
| Dec. 31 | | | | |
| Total Cost | $ | $ | $ | $ |
Feedback
Recall that the factory overhead is applied for this companyusing direct labor hours (DLH).
Journal
On December 10, POGP Company receives an order for 200 sweatervests and assigns Job 83 to the order. Review the MaterialsRequisition table to journalize the entry to record the addition ofthe materials to Work in Process. If an amount box does not requirean entry, leave it blank.
| Dec. 10 | Work in Process | | |
| Materials | | |
Feedback
Think about the flow of costs incurred to do a job and theaccounts affected by sales to customers.
On December 15, review the Time Ticket tables to journalize theentry to record the addition of direct labor to Work in Process forthe period December 1 through December 15. If an amount box doesnot require an entry, leave it blank.
| Dec. 15 | Work in Process | | |
| Wages Payable | | |
On December 15, review the Time Ticket tables to journalize theentry to record the addition of factory overhead to Work in Processfor the period December 1 through December 15. If an amount boxdoes not require an entry, leave it blank.
| Dec. 15 | Work in Process | | |
| Factory Overhead | | |
On December 21, Job 62 is completed. Review the Job Cost Sheetsand your journal entries. Journalize the entry to move theassociated costs to the finished goods account. If an amount boxdoes not require an entry, leave it blank.
| Dec. 21 | Finished Goods | | |
| Work in Process | | |
On December 22, 75 of the 100 sweaters from Job 62 are sold onaccount for $125 each. Journalize the following transactions:
a. The entry to record the sale.
b. The entry to record the transfer of costs from Finished Goodsto Cost of Goods Sold.
If an amount box does not require an entry, leave it blank.
| Dec. 22 | Accounts Receivable | | |
| Sales | | |
| Dec. 22 | Cost of Goods Sold | | |
| Finished Goods | | |
On December 31, the last work day of the year for the knitters,review the Time Ticket tables to journalize the entry to record theaddition of direct labor to Work in Process for the period December16 through December 31. If an amount box does not require an entry,leave it blank.
| Dec. 31 | Work in Process | | |
| Wages Payable | | |
On December 31, the last work day of the year for the knitters,review the Time Ticket tables to journalize the entry to record theaddition of factory overhead to Work in Process for the periodDecember 16 through December 31. If an amount box does not requirean entry, leave it blank.
| Dec. 31 | Work in Process | | |
| Factory Overhead | | |
On December 31, journalize the following transactions. Note thatexpenses (b), (c), and (d) were paid in cash.
a. One month’s depreciation on equipment
b. One month’s payroll for all employees
c. One month’s rent of $2,000
d. One month’s factory utilities of $1,275
If an amount box does not require an entry, leave it blank.
| Dec. 31 | Factory Overhead | | |
| Wages Expense | | |
| Wages Payable | | |
| Cash | | |
| Accumulated Depreciation-Equipment | | |
On December 31, prepare the journal entry to dispose of thebalance in the factory overhead account. If an amount box does notrequire an entry, leave it blank.
| Dec. 31 | Cost of Goods Sold | | |
| Factory Overhead | | |
Feedback
Final Question
What are the balances in the following accounts as of December31? If an amount is zero, enter "0".
| Materials | $ |
| Work in Process | $ |
| Finished Goods | $ |
| Factory Overhead | $ |
| Cost of Goods Sold | $ |
