Chapter 4 – Accounting entries for a job costing system
MULTIPLE CHOICE
1. ____ is the recognition and recording of costs.
a.
Cost accumulation
b.
Cost measurement
c.
Cost assignment
d.
Job order costing
2. Assume the following information for Knight Ltd. for the year ended December 31, 2011:
Sales
£2,250
Cost of goods manufactured for the year
1,350
Beginning finished goods inventory
450
Ending finished goods inventory
495
Selling and administrative expenses
300
What is the cost of goods sold for the year ended December 31, 2011?
a.
£1,305
b.
£1,605
c.
£1,350
d.
£1,650
3. Assume the following data for Gross, Inc., for February:
Beginning finished goods inventory
£ 60,000
Beginning work-in-prgress inventory
40,000
Ending work-in–progress inventory
80,000
Ending finished goods inventory
50,000
Actual factory overhead costs
200,000
Direct materials used
160,000
Direct labour
100,000
What is the cost of goods manufactured for February?
a.
£470,000
b.
£420,000
c.
£460,000
d.
£430,000
4. Assume the following information:
£ 90,000
130,000
150,000
15,000
20,000
42,000
37,500
What was the cost of goods manufactured during the year?
a.
£370,000
b.
£365,000
c.
£343,000
d.
£333,000
5. Assume the following data for Graham Services, an architecture firm, for February:
Beginning materials inventory
£ 20,000
Beginning work-in-progress inventory
40,000
Ending work-in–progress inventory
50,000
Ending materials inventory
10,000
Actual overhead costs
100,000
Direct materials used
60,000
Direct labour
200,000
What is the cost of services sold for February?
a.
£370,000
b.
£350,000
c.
£360,000
d.
£330,000
6. The following information is available for the current year for Sven’s Brokerage Services:
£661,000
7,000
6,000
100,000
30,000
150,000
80,000
120,000
What is Sven’s income before taxes for the year?
a.
£180,000
b.
£182,000
c.
£380,000
d.
£382,000
7. A debit to the Materials (Stores ledger account) indicates
a.
materials were purchased.
b.
materials were requisitioned.
c.
materials were put into production.
d.
materials were ordered.
Figure 4-1
Walter Company uses a job-order costing system to account for product costs. The following
information pertains to 2011:
Materials placed into production
£140,000
Indirect labour
40,000
Direct labour (10,000 hours)
160,000
Depreciation of factory building
60,000
Other factory overhead
100,000
Increase in work-in-progress inventory
30,000
Factory overhead rate is £18 per direct labour hour.
8. Refer to Figure 4-1. What is the total amount credited to Materials (Stores ledger account) for Walter
in 2011?
a.
£480,000
Sales
Less cost of services sold:
Direct materials
Direct labour
Overhead
Total current service costs
Add: Beginning work in progress
Less: Ending work in progress
Cost of services provided
Gross margin
Less operating expenses:
Selling expenses
Administrative expenses
Income before taxes
b.
£170,000
c.
£140,000
d.
£110,000
9. Refer to Figure 4-1. What is the total amount debited to Finished Goods Inventory in 2011?
a.
£490,000
b.
£510,000
c.
£450,000
d.
£550,000
10. A journal entry debiting Work in Progress would normally NOT be accompanied by a credit to
a.
Materials.
b.
Finished Goods.
c.
Overhead Control.
d.
Wages Payable.
11. On April 9, 2011, Job XX4 was completed. The job cost sheet showed a total of £4,000 in direct
materials and £6,000 in direct labour at a rate of £20 per direct labour hour. Factory overhead is
applied at £30 per direct labour hour. The debit to Finished Goods Inventory to record the completion
of Job XX4 is
a.
£13,000.
b.
£9,000.
c.
£4,000.
d.
£19,000.
Figure 4-2
Allen Company has the following information for the Assembly Department for October 2011:
Materials purchased
£ 40,000
Materials used
44,000
Direct labour
30,000
Actual manufacturing overhead
56,000
Cost of goods completed and transferred to the Finishing Dept.
120,000
Overhead rate is 200 per cent of direct labour costs.
Allen Company uses a process costing system for the Assembly Department.
12. Refer to Figure 4-2. The journal entry to record materials purchased would include a
a.
debit to Materials Inventory for £40,000.
b.
debit to Materials Inventory for £44,000.
c.
credit to Accounts Payable for £44,000.
d.
both b and c.
13. Refer to Figure 4-2. What is the total amount of debits to Work in Progress-Assembly Department for
October?
a.
£120,000
b.
£126,000
c.
£134,000
d.
cannot be determined
14. Refer to Figure 4-2. The journal entry to record goods completed and transferred out of the Assembly
Department would include a
a.
debit to Finished Goods Inventory for £120,000.
b.
credit to Materials Inventory for £120,000.
c.
debit to Work in Progress-Assembly Department for £120,000.
d.
debit to Work in Progress-Finishing Department for £120,000.
15. In a job-order system, recording the use of indirect materials would include a debit to
a.
Overhead Control.
b.
Work in Progress.
c.
Finished Goods.
d.
Raw Materials.
16. As goods are sold, the cost of the goods is transferred from
a.
Finished Goods to Cost of Goods Sold.
b.
Work in Process to Cost of Goods Sold.
c.
Overhead to Finished Goods.
d.
Work in Process to Finished Goods.
17. Which entry is recorded when materials are moved from storeroom to production?
a.
Work in Process XX
Raw Materials XX
b.
Raw Materials XX
Work in Process XX
c.
Overhead Control XX
Raw Materials XX
d.
Materials Expense XX
Raw Materials XX
18. The entry to record total manufacturing overhead applied would be
a.
Overhead Control XX
Work in Progress XX
b.
Finished Goods Inventory XX
Work in Progress XX
c.
Work in Progress XX
Overhead Control XX
d.
Overhead Control XX
Accounts Payable XX
19. Factory depreciation would be recorded using which of the following entries?
a.
Overhead Control XX
Accounts Payable XX
b.
Overhead Control XX
Accumulated Depreciation XX
c.
Depreciation Expense XX
Accumulated Depreciation XX
d.
Accumulated Depreciation XX
Overhead Control XX
20. An entry to record the sale of goods would be
a.
Cost of Goods Sold XX
Finished Goods XX
b.
Finished Goods XX
Cost of Goods Sold XX
c.
Cost of Goods Sold XX
Work in Progress XX
d.
Work in Progress XX
Cost of Goods Sold XX
Figure 4-3
A firm that has implemented JIT had the following transactions:
1.
Materials were purchased on account for £40,000.
2.
Materials were placed into production.
3.
Actual direct labour costs were £6,000.
4.
Actual overhead costs were £40,000.
5.
Conversion costs applied were £42,000.
6.
All work was completed for the month.
7.
All completed work was sold.
8.
The variance is recognized.
21. Refer to Figure 4-3. Which of the following would NOT be an entry under the backflush system,
assuming the second trigger point is the completion of goods?
a.
Materials and In Progress 40,000
Accounts Payable 40,000
b.
Work in Process 40,000
Materials 40,000
c.
Conversion Cost Control 46,000
Payroll 6,000
Accounts Payable 40,000
d.
Cost of Goods Sold 82,000
Finished Goods 82,000
22. Refer to Figure 4-3. What will be the entry to record material purchases using the backflush approach?
a.
Materials and In Progress 40,000
Accounts Payable 40,000
b.
Materials 40,000
Accounts Payable 40,000
c.
Accounts Payable 40,000
Materials and In Process 40,000
d.
Accounts Payable 40,000
Materials 40,000
PROBLEM
1. The following information pertains to Davis, Inc.:
Direct materials purchases
£ 62,400
Beginning direct materials
10,400
Factory overhead
58,400
Beginning work in progress
10,600
Cost of goods manufactured
164,000
Ending finished goods
20,000
Gross profit
21,000
Selling and administrative expenses
7,000
Beginning finished goods
16,000
Ending work in progress
8,000
Ending direct materials
12,400
Direct labour
?
Direct materials used
?
Net income (loss)
?
Total manufacturing costs added
?
Cost of goods sold
?
Sales
?
Required:
Determine the following values:
a.
Net income
b.
Total manufacturing costs added
c.
Cost of goods sold
d.
Sales
e.
Direct materials used
f.
Direct labour
2. The cost of goods sold for the Tricky Ltd. for the month of June 2011 was £450,000. Work-in-progress
inventory at the end of June was 95 per cent of the work-in–progress inventory at the beginning of the
month. Overhead is 80 per cent of the direct labour cost. During the month, £110,000 of direct
materials were purchased. Revenues for Tricky were £600,000, and the selling and administrative
costs were £70,000. Other information about Tricky’s inventories and production for June was as
follows:
Ending inventories-June 30
Direct materials
£ 19,000
Work in progress
?
Finished goods
105,000
Beginning inventories-June 1
Direct materials
£ 22,200
Work in progress
40,000
Finished goods
208,500
Required:
a.
Prepare a cost of goods manufactured and cost of goods sold statements.
b.
Prepare an income statement.
c.
What are the prime costs, conversion costs, and period costs?
DM used = £22,200 + £110,000 – £19,000 = £113,200
CGM = £450,000 + £105,000 – £208,500 = £346,500
Direct materials:
Beginning inventory*
Add: Purchases*
Materials available
Less: Ending inventory*
£21,000 – £7,000 = £14,000
b.
£164,000 + £8,000 – £10,600 = £161,400
£16,000 + £164,000 – £20,000 = £160,000
d.
£21,000 + £160,000* = £181,000
e.
£10,400 + £62,400 – £12,400 = £60,400
f.
£161,400** – £60,400*** – £58,400 = £42,600
*Found in c.
**Found in b.
***Found in e.
3. Home Designs Company designs decks, gazebos, and play equipment for residential homes. The
following was provided for the year ended June 30, 2011:
Direct labour
£600,000
Direct material purchases
40,000
Administrative
130,000
Overhead
75,000
Selling
265,000
Beginning direct materials inventory
20,000
Beginning designs in progress
14,000
Ending direct materials inventory
10,000
Ending designs in progress
39,000
The average design fee is £700. There were 2,000 designs processed during the year.
Required:
a.
Prepare a statement of cost of services sold.
b.
Prepare an income statement.
c.
Discuss three differences between services and tangible products.
a.
DM used = £20,000 + £40,000 – £10,000 = £50,000
CSS = £50,000 + £600,000 + £75,000 + £14,000 – £39,000 = £700,000
b.
NI = £1,400,000 – £700,000 – £130,000 – £265,000 = £305,000
perishability, and inseparability.
4. The following information has been extracted from the records of Haverhill Company:
Sales
£400,000
Purchases of raw materials
70,000
Indirect labour
10,000
Indirect materials
4,000
Depreciation of factory equipment
15,000
Depreciation of factory buildings
11,000
Depreciation of administrative building
41,000
Marketing costs
25,000
Direct labour
180,000
Raw materials inventory, 12-31-11
14,000
Work in progress, 1-1-11
31,000
Raw materials inventory, 1-1-11
10,000
Work in progress, 12-31-11
23,000
Finished goods inventory, 1-1-11
49,000
Finished goods inventory, 12-31-11
44,000
Required:
a.
Prepare a statement of cost of goods manufactured.
b.
Prepare an income statement for the Haverhill Company for the year ending December
31, 2011.
5. The following information was taken from the job cost sheet for Job 101 for Scott Manufacturing
Company:
Date started:
July 5, 2011
Date completed:
August 21, 2011
Direct materials:
Beginning inventory
Add: Purchases
Materials available
Less: Ending inventory
Direct materials used
Manufacturing overhead:
Indirect materials
Indirect labour
Depreciation of factory equipment
Depreciation of factory buildings
Total manufacturing costs added
Add: Beginning work in progress
Total manufacturing costs
Less: Ending work in progress
Cost of goods manufactured
Sales
Less cost of goods sold:
Beginning finished goods inventory
Add: Cost of goods manufactured
Cost of goods available for sale
Less: Ending finished goods inventory
Gross margin
Less operating expenses:
Selling expenses
Administrative expenses
Income before taxes
Direct
Direct
Factory
Job
Date
Materials
labour
Overhead
Total
7-05-07
£3,000
7-15-07
£ 900
£450
7-17-07
1,500
7-22-07
1,350
675
8-01-07
1,500
8-21-07
600
300
Job 101 was sold on account on August 25, 2011, for 160 per cent of its cost.
Required:
a.
Prepare the journal entries to record the costs incurred for Job 101 in 2011 for direct materials,
direct labour, and factory overhead.
b.
Prepare the journal entry to record the completion of Job 101.
c.
What is the predetermined factory overhead rate for Scott?
d.
Prepare the journal entries to record the sale of Job 101.
6. Moore Company completed the following transactions with respect to its manufacturing operations
during December 2011:
a.
Materials costing £140,000 and indirect materials costing £16,800 were purchased on
account. Assume indirect materials was debited to materials.
b.
A total of £70,000 of materials was requisitioned to the factory for manufacturing
operations conducted during December.
c.
Manufacturing payroll for the month consisted of 2,000 hours of direct labour and 500
hours of indirect labour, both at £14 per hour.
d.
Indirect materials costing £7,000 were requisitioned.
e.
Depreciation on the factory building and equipment was £14,000.
Work in Progress
Materials
Work in Progress
Wages Payable
Work in Progress
Factory Overhead
b.
Finished Goods
10,275
Work in Progress
10,275
£1,425/£2,850 = 50% of direct labour costs
d.
Accounts Receivable
16,440
Sales
16,440
Cost of Goods Sold
10,275
Finished Goods
10,275
f.
Miscellaneous factory overhead expenses totaled £5,600 for December.
g.
Factory overhead cost was applied to work in progress at the rate of 125 per cent of direct
labour costs.
h.
Units of product with a total manufacturing cost of £84,000 were completed and transferred
to the finished goods warehouse.
i.
Finished goods costing £49,000 were sold during December for £77,000.
Required:
Prepare journal entries for each of the transactions that occurred during December 2011.
7. Begzy Company produces calculators on an assembly line in a single-step process. The following data
pertains to November 2011:
Current manufacturing costs:
Materials purchased
£150,000
Materials issued to production
120,000
Direct labour
40,000
Factory overhead
30,000
Materials
Accounts Payable
b.
Work in Progress
Materials
Work in Progress
Factory Overhead
Wages Payable
d.
Factory Overhead
Materials
Factory Overhead
Accumulated Depreciation
Factory Overhead
Various Accounts
g.
Work in Progress
Factory Overhead
h.
Finished Goods
Work in Progress
Cash
Sales
Cost of Goods Sold
Finished Goods Inventory
Finished goods for period
180,000
Beginning work in progress
-0-
Ending work in progress:
Materials
3,000
Direct labour
?
Factory overhead
?
Required:
a.
Prepare traditional journal entries for the following events in November:
1. Purchase of materials on account
2. Requisition of materials into production
3. Usage of direct labour
4. Application of overhead
5. Completion of finished goods
b.
What is the amount of direct labour in ending work in progress?
ANS:
8. A firm that has implemented JIT had the following transactions:
1.
Materials were purchased on account for £50,000.
2.
Materials were placed into production.
3.
Actual direct labour costs were £10,000.
1.
Materials
Accounts Payable
2.
Work in Progress
Materials Inventory
3.
Wages Payable
4.
Work in Progress
Factory Overhead
5.
Finished Goods
Work in Progress
b.
Ending WIP
= £0 + £120,000 + £40,000 + £30,000 – £180,000
= £10,000
OH rate = (£30,000/£40,000) = 75% of DLC
Let X = Direct labour cost
10,000
£7,000
£4,000
4.
Actual overhead costs were £40,000.
5.
Conversion costs applied were £44,000.
6.
All work was completed for the month.
7.
All completed work was sold.
8.
The variance is recognized.
Required:
a.
Provide the journal entries for the above transactions assuming the traditional approach was
used.
b.
Provide the journal entries for a backflush system assuming the second trigger point is the
point when goods are completed.
9. A firm that has implemented JIT had the following transactions:
1.
Materials were purchased on account for £60,000.
2.
Materials were placed into production.
3.
Actual direct labour costs were £14,000.
4.
Actual overhead costs were £50,000.
5.
Conversion costs applied were £68,000.
6.
All work was completed for the month.
7.
All completed work was sold.
8.
The variance is recognized.
Required:
a.
Provide the journal entries for the above transactions assuming the traditional approach was
used.
b.
Provide the journal entries for a backflush system assuming the second trigger point is the
point when goods are sold.
Accounts Payable
Materials
3.
Work in Progress
4.
Overhead Control
Overhead Control
Work in Progress
7.
Cost of Goods Sold
8.
Overhead Control
Finished Goods
Conversion Cost Control