SOLUTION
Some instructors may also want to assign Exercise 4-25. It demonstrates the relationships of the
general ledger to the underlying subsidiary ledgers and source documents.
1. An overview of the product costing system is:
2. & 3.
This answer assumes COGS given of $4,020 does not include the writeoff of overallocated
manufacturing overhead.
2.
(1) Materials Control
Accounts Payable Control
800
800
(2) Work-in-Process Control
Materials Control
710
710
(3) Manufacturing Overhead Control
Materials Control
100
100
(4) Work-in-Process Control
Manufacturing Overhead Control
Wages Payable Control
1,300
900
2,200
(5) Manufacturing Overhead Control
Accumulated Depreciation––buildings and
manufacturing equipment
400
400
(6) Manufacturing Overhead Control
Miscellaneous accounts
550
550
(7) Work-in-Process Control
Manufacturing Overhead Allocated
(1.60 $1,300 = $2,080)
2,080
2,080
COST OBJECT:
PRINT JOB
COST
ALLOCATION
BASE
DIRECT
COST
Manufacturing Overhead
Direct Manufacturing
Labor Costs
Direct
Materials
INDIRECT
COST
POOL
Direct
Manuf
.
Labor
Indirect Costs
Direct Costs
4-2
(8) Finished Goods Control
Work-in-Process Control
4,120
4,120
(9) Accounts Receivable Control (or Cash)
Revenues
8,000
8,000
(10) Cost of Goods Sold
Finished Goods Control
4,020
4,020
(11) Manufacturing Overhead Allocated
Manufacturing Overhead Control
Cost of Goods Sold
2,080
1,950
130
4-3
3.
Materials Control
Bal. 1/1/2011
(1) Accounts Payable
Control (Purchases)
100
800
(2) Work-in-Process Control
(Materials used)
(3) Manufacturing Overhead
Control (Materials used)
710
100
Bal. 12/31/2011
90
Work-in-Process Control
Bal. 1/1/2011
(2) Materials Control
(Direct materials)
(4) Wages Payable
Control (Direct
manuf. labor)
(7) Manuf. Overhead
Allocated
60
710
1,300
2,080
(8) Finished Goods Control
(Goods completed)
4,120
Bal. 12/31/2011
30
Finished Goods Control
Bal. 1/1/2011
(8) WIP Control
(Goods completed)
500
4,120
(10) Cost of Goods Sold
4,020
Bal. 12/31/2011
600
Cost of Goods Sold
(10) Finished Goods
Control (Goods sold)
4,020
(11) Manufacturing Overhead
Allocated (Adjust for
overallocation)
130
Bal. 12/31/2011
3,890
Manufacturing Overhead Control
(3) Materials Control
(Indirect materials)
(4) Wages Payable Control
(Indirect manuf. labor)
(5) Accum. Deprn. Control
(Depreciation)
(6) Accounts Payable Control
(Miscellaneous)
100
900
400
550
(11) To close
1,950
Bal.
0
Manufacturing Overhead Allocated
(11) To close
2,080
(7) Work-in-Process Control
(Manuf. overhead allocated)
2,080
Bal.
0
4-4
4. Gross margin = Revenues Cost of goods sold = $8,000 $3,890 = $4,110. This is a very good
profit margin of 51% ($4,110 ÷ $8,000) indicating that University of Chicago Press
performed very well in 2014. (Gross margins above 30% are generally considered very
good.) It also accurately budgeted for manufacturing overhead costs resulting in a very small
overallocation.
4-5
3
4-25 (35 minutes) Journal entries, T-accounts, and source documents.
Creation Company produces gadgets for the coveted small appliance market. The following data
reflect activity for the year 2014:
Costs incurred:
Purchases of direct materials (net) on credit
$122,000
Direct manufacturing labor cost
83,000
Indirect labor
54,000
Depreciation, factory equipment
32,000
Depreciation, office equipment
7,900
Maintenance, factory equipment
29,000
Miscellaneous factory overhead
9,900
Rent, factory building
78,000
Advertising expense
94,000
Sales commissions
33,000
Inventories:
January 1, 2014
December 31, 2014
Direct materials
$ 9,800
$13,000
Work in process
6,300
23,000
Finished goods
68,000
27,000
Creation Co. uses a normal-costing system and allocates overhead to work in process at a rate of
$2.60 per direct manufacturing labor dollar. Indirect materials are insignificant so there is no
inventory account for indirect materials.
Required:
1. Prepare journal entries to record the transactions for 2014 including an entry to close out over-
or underallocated overhead to cost of goods sold. For each journal entry indicate the source
document that would be used to authorize each entry. Also note which subsidiary ledger, if
any, should be referenced as backup for the entry.
2. Post the journal entries to T-accounts for all of the inventories, Cost of Goods Sold, the
Manufacturing Overhead Control Account, and the Manufacturing Overhead Allocated
Account.
4-6
SOLUTION
1. i. Direct Materials Control 122,000
Accounts Payable Control 122,000
Source Document: Purchase Invoice, Receiving Report
Subsidiary Ledger: Direct Materials Record, Accounts Payable
ii. Work in Process Controla 118,800
Direct Materials Control 118,800
Source Document: Material Requisition Records, Job Cost Record
Subsidiary Ledger: Direct Materials Record, Work-in–Process Inventory Records by Jobs
iii. Work in Process Control 83,000
Manufacturing Overhead Control 54,000
Wages Payable Control 137,000
Source Document: Labor Time Sheets, Job Cost Records
Subsidiary Ledger: Manufacturing Overhead Records, Employee Labor Records, Work–in–
Process Inventory Records by Jobs
iv. Manufacturing Overhead Control 148,900
Salaries Payable Control 29,000
Accounts Payable Control 9,900
Accumulated Depreciation Control 32,000
Rent Payable Control 78,000
Source Document: Depreciation Schedule, Rent Schedule, Maintenance wages due, Invoices
for miscellaneous factory overhead items
Subsidiary Ledger: Manufacturing Overhead Records
v. Work in Process Control 215,800
Manufacturing Overhead Allocated 215,800
($83,000
$2.60)
Source Document: Labor Time Sheets, Job Cost Record
Subsidiary Ledger: Work–in-Process Inventory Records by Jobs
vi. Finished Goods Controlb 400,900
Work in Process Control 400,900
Source Document: Job Cost Record, Completed Job Cost Record
Subsidiary Ledger: Work–in-Process Inventory Records by Jobs, Finished Goods Inventory
Records by Jobs
vii. Cost of Goods Soldc 441,900
Finished Goods Control 441,900
Source Document: Sales Invoice, Completed Job Cost Record
Subsidiary Ledger: Finished Goods Inventory Records by Jobs
4-7
viii. Manufacturing Overhead Allocated 215,800
Manufacturing Overhead Control
($54,000 + $148,900) 202,900
Cost of Goods Sold 12,900
Source Document: Prior Journal Entries
ix. Administrative Expenses 7,900
Marketing Expenses 127,000
Salaries Payable Control 33,000
Accounts Payable Control 94,000
Accumulated Depreciation, Office Equipment 7,900
Source Document: Depreciation Schedule, Marketing Payroll Request, Invoice for
Advertising, Sales Commission Schedule.
Subsidiary Ledger: Employee Salary Records, Administration Cost Records, Marketing Cost
Records.
aMaterials used =
Beginning direct
materials inventory
+ Purchases –
Ending direct
materials inventory
= $9,800 + $122,000 $13,000 = $118,800−
b
Cost of
goods manufactured
=
Beginning WIP
inventory
+
Manufacturing
cost
–
Ending WIP
inventory
= $6,300 + ($118,800 + $83,000 + $215,800) $23,000 = $400,900−
cCost of goods sold =
Beginning finished
goods inventory
+
Cost of goods
manufactured
–
Ending finished
goods inventory
= $68,000 + $400,900 $27,000 = $441,900−
2. T-accounts
Direct Materials Control
Bal. 1/1/2011
(1) Accounts Payable Control
(Purchases)
9,800
122,000
(2) Work-in-Process Control
(Materials used)
118,800
Bal. 12/31/2011
13,000
Work-in–Process Control
Bal. 1/1/2011
(2) Materials Control
(Direct materials used)
(3) Wages Payable Control
(Direct manuf. labor)
(5) Manuf. Overhead
Allocated
6,300
118,800
83,000
215,800
(6) Finished Goods Control
(Cost of goods
manufactured)
400,900
Bal. 12/31/2011
23,000
Finished Goods Control
Bal. 1/1/2011
(6) WIP Control
(Cost of goods manuf.)
68,000
400,900
(7) Cost of Goods Sold
441,900
Bal. 12/31/2011
27,000
Cost of Goods Sold
(7) Finished Goods Control
(Goods sold)
441,900
(8) Manufacturing Overhead
Allocated (Adjust for
overallocation)
12,900
Manufacturing Overhead Control
(3) Wages Payable Control
(Indirect manuf. labor)
(4) Salaries Payable Control
(Maintenance)
(4) Accounts Payable Control
(Miscellaneous)
(4) Accum. Deprn. Control
(Depreciation)
(4) Rent Payable Control
(Rent)
54,000
29,000
9,900
32,000
78,000
(8) To close
202,900
Bal.
0
Manufacturing Overhead Allocated
(8) To close
215,800
(5) Work-in-Process Control
(Manuf. overhead
allocated)
215,800
4-9
Bal.
0
aMaterials used =
Beginning direct
materials inventory
+ Purchases –
Ending direct
materials inventory
= $9,800 + $122,000 $13,000 = $118,800−
b
Cost of
goods manufactured
=
Beginning WIP
inventory
+
Manufacturing
cost
–
Ending WIP
inventory
= $6,300 + ($118,800 + $83,000 + $215,800) $23,000 = $400,900−
cCost of goods sold =
Beginning finished
goods inventory
+
Cost of goods
manufactured
–
Ending finished
goods inventory
= $68,000 + $400,900 $27,000 = $441,900−
4-10
4-26 (45 min.) Job costing, journal entries.
Donald Transport assembles prestige manufactured homes. Its job- costing system has two direct–
cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool
(manufacturing overhead allocated at a budgeted $31 per machine-hour in 2014). The following
data (in millions) show operation costs for 2014:
Materials Control, beginning balance, January 1, 2014 $ 18
Work-in–Process Control, beginning balance, January 1, 2014 9
Finished Goods Control, beginning balance, January 1, 2014 10
Materials and supplies purchased on credit 154
Direct materials used 152
Indirect materials (supplies) issued to various production departments 19
Direct manufacturing labor 96
Indirect manufacturing labor incurred by various production departments 34
Depreciation on plant and manufacturing equipment 28
Miscellaneous manufacturing overhead incurred (ordinarily would be detailed as 13
repairs, utilities, etc., with a corresponding credit to various liability accounts)
Manufacturing overhead allocated, 3,000,000 actual machine-hours ?
Cost of goods manufactured 298
Revenues 410
Cost of goods sold 294
Required:
1. Prepare an overview diagram of Donald Transport’s job-costing system.
2. Prepare journal entries. Number your entries. Explanations for each entry may be omitted. Post
to T-accounts. What is the ending balance of Work-in–Process Control?
3. Show the journal entry for disposing of under- or overallocated manufacturing overhead
directly as a year-end writeoff to Cost of Goods Sold. Post the entry to T-accounts.
4. How did Donald Transport perform in 2014?