3. (10 points). Alam Company is a manufacturing firm that uses job-order costing

Question

3. (10 points). Alam Company is a manufacturing firm that uses job-order costing. At the beginning of the year, the company's inventory balances were as follows: Raw materials$24,000 $73,000 Finished goods $27,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 45,000 machine- hours and incur $180,000 in manufacturing overhead cost. The following transactions were recorded for the year: a. Raw materials were purchased, $416,000 b. Raw materials were requisitioned for use in production, $420,000 ($380,000 direct and $40,000 indirect). c. The following employee costs were incurred: direct labor $414,000; indirect labor, $60,000; and administrative salaries, $212,000 d. Selling costs, S141,000 e. Factory utility costs, $20,000 f. Depreciation for the year was $81,000 of which $73,000 is related to factory operations and general, and administrative activities. g. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 48,000 machine-hours. h. The cost of goods manufactured for the year was $1,004,000 i. Sales for the year totaled S1,416,000 and the costs on the job cost sheets of the goods that were sold totaled $989,000 j. The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold. $8,000 is related to selling, Required: Prepare the appropriate journal entry for each of the items above (a. through j.). You can assume that all transactions with employees, customers, and suppliers were conducted in cash.

Explanation / Answer

Accounts Titles & Explanation

Debit

Credit

(a).

Raw materials inventory

$416000

     Cash

$416000

(For recording purchase of raw materials)

(b).

Work-in-process inventory

$380000

Manufacturing overhead

$40000

     Raw materials inventory

$420000

(For recording requisition of materials)

(c).

Work-in-process inventory

$414000

Manufacturing overhead

$60000

Administrative salaries expense

$212000

     Cash

$686000

(For recording incurred costs)

(d).

Selling expenses

$141000

     Cash

$141000

(For recording selling expenses)

(e).

Manufacturing overhead

$20000

     Cash

$20000

(For recording factory utility costs)

(f).

Manufacturing overhead

$73000

Depreciation expenses

$8000

     Accumulated depreciation

$81000

(For recording depreciation expenses)

(g).

Work-in-process

$180000

     Manufacturing overhead

$180000

(For recording applied manufacturing overheads to the job)

(h).

Finished goods

$1004000

     Work-in-process

$1004000

(For recording cost of finished goods)

(i).

Cash

$1416000

     Sales

$1416000

(for recording sale of goods)

Cost of goods sold

$989000

     Finished goods

$989000

(For recording costs of goods sold)

(j).

Cost of goods sold

$19000

     Manufacturing overhead

$19000

(For transferring balance of manufacturing overahead account to cost of goods sold account)

Working note;

(1). Amount of entry (j) is calculated as follow;

($20000 + $60000 + $73000 + $8000) = $161000

($180000 - $161000) = $19000

Accounts Titles & Explanation

Debit

Credit

(a).

Raw materials inventory

$416000

     Cash

$416000

(For recording purchase of raw materials)

(b).

Work-in-process inventory

$380000

Manufacturing overhead

$40000

     Raw materials inventory

$420000

(For recording requisition of materials)

(c).

Work-in-process inventory

$414000

Manufacturing overhead

$60000

Administrative salaries expense

$212000

     Cash

$686000

(For recording incurred costs)

(d).

Selling expenses

$141000

     Cash

$141000

(For recording selling expenses)

(e).

Manufacturing overhead

$20000

     Cash

$20000

(For recording factory utility costs)

(f).

Manufacturing overhead

$73000

Depreciation expenses

$8000

     Accumulated depreciation

$81000

(For recording depreciation expenses)

(g).

Work-in-process

$180000

     Manufacturing overhead

$180000

(For recording applied manufacturing overheads to the job)

(h).

Finished goods

$1004000

     Work-in-process

$1004000

(For recording cost of finished goods)

(i).

Cash

$1416000

     Sales

$1416000

(for recording sale of goods)

Cost of goods sold

$989000

     Finished goods

$989000

(For recording costs of goods sold)

(j).

Cost of goods sold

$19000

     Manufacturing overhead

$19000

(For transferring balance of manufacturing overahead account to cost of goods sold account)

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