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Background:
On May 2nd, Shred-It Boards commenced manufacturing. Greg's strategy is to build and finish themin batches to keep costs down. He will supervise the work of three employees in the manufacture of each batch.
Job Order Costing System
As Greg's accountant you note the manufacturing of skateboards will be completed in individual and identifiable jobs so you set up job-order costing system to record and process the costs of production. In consultation with Greg, you decide that overhead should be applied based on ?direct labor hours ?. ?You estimate that total manufacturing overhead for the rest of the year (the period over which the pre-determined overhead rate is calculated) will be 48,600 and total direct labor hours to be worked will be 2,700.
Signed a lease and pre-paid one years rent on a building for $2,000 per month.
Borrowed $27,000 by issuing a note payable to the bank. The note requires 8% simple interest to be paid monthly, and with principal to be paid in two years.
The following transactions occurred during the month of May:
May 2- Wood and other raw materials were purchased on account, delivered and placed into storage: $6,000
May 9- Raw materials were requisitioned for use and moved into the factory for production, $4,200 of direct materials and $400 of indirect materials
May 27- The following costs were accrued for employee services in the production of skateboards; direct labor of 240 hours, $5,400; indirect labor of $200. The wages will be paid during the first week of the next month
May 27- Manufacturing overhead is applied to production on the basis of direct labor hours. The predetermined overhead rate is based on the information above.
Mayy 31- Greg paid one month's interest on the note payable.
May 31- Greg received a salary of $2,000 in cash. (80% relates to factory operations and 20% relates to administrative activities)
May 31- One month of prepaid rent had expired and one month of prepaid insurance had been consumed. In both cases 80% relates to factory operations and 20% relates to administrative activities.
May 31- Greg paid the utility bill of $900 for the electricity used during the month. (90% relates to factory operations and 10% relates to administrative activities)
May 31- A batch of 200 skateboards were completed and moved to finished goods storage. According to the job cost sheets, the manufacturing cost of the boards was $13,000.
May 31- Depreciation on both the administrative and factory equipment for the month of May is recorded.
May 31- The batch of 200 skateboards was sold and delivered to Sun West sporting goods with the sale recorded on account at a price of $82.50 per board.
May 31- Greg paid cash of $250 to rent and gas a delivery truck to deliver the boards to the warehouse of Sun West Sporting Goods. You record this as a selling expense.
1. Prepare Journal entries to record the above transactions.
ACCT # | ACCOUNT TITLE | ACCT # | ACCOUNT TITLE 213 Notes 'ayable 311 Cn 312 Retained Eanings 313 Income Summary 411 Salcs 511 Cost of Goods Sold 514 Administrative Salary Expense 515 Administrative Utilities Expense 516 Administrative Rent Expense 317 Administrative Insurance Expense 521 Depreciation Expense-Off. Equip. 111 Cash 113 Accounts Receivable 115 Prepaid Rent 117 Prepaid Insurancc 118 Raw Materials Inventory 119 Work-In-Process Inventory 120 Finished Goods Inventory 121 Manufacturing Overhead 142 Office Equipment 143 Accumulated Depreciation-Office Equip. 5 Accounts Receivahle 144 Factory Equipment 145 Accumulated Depreciation-Factory Equip. 522 Interest Expense 211 Accounts Payable 212 Wages Payable 523 Selling ExpenseExplanation / Answer
May Account title and equation Debit($) Credit($) 2 Raw material Inventory 6000 Accounts payable 6000 (To record the purhcase) 9 Factory overhead 4600 Work in progress 4200 Raw material Inventory 400 (To record the issue of material) 27 Wages expense 5400 Work in progress 200 Wages payable 5600 (To record the wages) 27 Factory overhead 48600 Accounts payable 48600 (To record the other expenses) 31 Interest expense 2160 Notes payable 2160 31 Bank 2000 Cash 2000 31 Utility 900 Cash 900 31 Finished goods 13000 Work in process 13000 (To record the finshed goods inventory) 31 Cost of goods sold 16500 Finished goods 16500 (To record the transfer of finished goods) 31 Rent 250 Cash 250
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