Question 2 Fine Arts Company manufactures handcrafted wooden jewellery boxes. Th
ID: 2385976 • Letter: Q
Question
Question 2
Fine Arts Company manufactures handcrafted wooden jewellery boxes. The company uses a job costing system, and manufacturing overhead is applied on the basis of direct labour hours. Estimated manufacturing overhead for the current year is $120,000. The company employs 5 carpenters, who are regarded as direct labour. Each of these employees is expected to work 2000 hours during the year.
At the beginning of September the inventory balances were as follows.
Raw materials: 2500 metres of wood at $11 per metre, $27,500.
Work in process: job number JB606, $1,850, consisting of direct material $250, direct labour $1,000, and manufacturing overhead, $600.
Finished goods; job number JB1505, $6000.
The following events occurred during September:
(1) Company purchased 1,500 meters of wood at $11 per metre.
(2) Following raw materials were transferred to production:
Job number JB606: 500 metres of wood.
Job number JB707: 2,500 metres of wood.
(3) Five litres of glue were purchased in September and issued to production. The glue cost $10 per litre. Glue is treated as an indirect material.
(4) Depreciation on the factory equipment for September was $4,000.
(5) The month’s 4200 electricity bill for the manufacturing plant was paid in cash.
(6) Time sheets showed the following use of labour:
Job number JB606: 50 hours of direct labour.
Job number JB707: 350 hours of direct labour.
The carpenters (direct labour) earn $20 per hour.
(7) The September council rates bill for the manufacturing plant of $455 was received but not yet paid in cash.
(8) The company employs labourers who perform various tasks such as material handling and shop clean-up. Their wages for September amounted to $1250.
(9) Job number JB606, which was started in July, was finished in September. Job number JB707 was incomplete at the end of September. Job number JB505 was sold in September for $7,500.
Required:
(a) Provide journal entries to record the event previously listed for September. (5 marks)
(b) Post journal entries to the following accounts and determine closing balances. (3 marks)
(i) Raw material, (ii) Work in process, and (iii) Finished goods
(c) Prepare job-order cost sheet for job number JB606 showing all costs through July - 30 September.
Explanation / Answer
Amount in $
1. Raw materials A/c..............Dr. 16,500
To Cash A/c 16,500
(Raw materials - wood 1500m @ $ 11 per metre)
2. Work in process (JB 606) A/c.........Dr. 5,500
Work in process (JB 707) A/c.........Dr. 27,500
To Raw materials A/c 33,000
(Being raw materials transferred to production)
3. Work in process (JB 606) A/c.........Dr. (50hrs*20) 1,000
Work in process (JB 707) A/c.........Dr. (350 hrs * 20) 7,000
To Direct Labour A/c...............Dr. 8,000
4. Work in process (JB 606) A/c.........Dr. (50hrs*12) 600
Work in process (JB 707) A/c.........Dr. (350 hrs * 12) 4,200
To Manufacutring overhead A/c...............Dr. 4,800
Computation of manufacturong overhead
Estimated manufacturing overhead for the current year, a = $ 120,000
Total estimated labour hours, b (5*2000) = 10,000 hrs
Therefore, manufacturing overhead per labour hour = (a/b) = Rs 12 per hour.
5. Finished Goods A/C...............Dr. 7,100
To Work in process (JB 606) A/c. 7,100
(Work in process transferred to finished goods Account)
Closing balance of raw materials =
Opening balance 27,500
Add: purchases 16,500
Less: transferred 33,000
Closing balance 11,000
Closing balance of work in process (JB 707) =
Raw materials (2,500m@11) 27,500
Labour (350hrs@20) 7,000
Manufacturing overhhead (350*12) 4,200
Closing balance 38,700
Closing balance of Finished goods (JB 606) =
Opening value 1,850
Raw materials (500m@11) 5,500
Labour (50hrs@20) 1,000
Manufacturing overhhead (50*12) 600
Closing balance 8,950
Job cost sheet for job number JB 606
Raw materials (250+5500) 5,750
Labour (1,000+1,000) 2,000
Prime cost 7,750
Manufacturing overhead (600+600) 1,200
Total cost 8,950
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