Q29PGA - Horngren'S Financial And Managerial Accounting

Question

Ki Technology Co. manufactures DVDs for computer software and entertainment companies. Ki uses job order costing.

On April 2, Ki began production of 6,000 DVDs, Job 423, for Paradigm Pictures for \(1.20 sales price per DVD. Ki promised to deliver the DVDs to Paradigm Pictures by April 5. Ki incurred the following direct costs:

Date	Labor time record no.	Description	Amount
4/02	655	10 hours @ 16 per hour	\)160
4/03	656	20 hours @15 per hour	300

 

Date	Material requisition no.	Description	Amount
4/02	63	31 lbs. polycarbonate plastic @ 11 per lb.	\(341
4/02	64	25 lbs. acrylic plastic @ \)29 per lb.	725
4/03	74	3 lbs. refined alluminium @ 45 per lb.	135

Ki Technology allocates manufacturing overhead to jobs based on the relation

between estimated overhead of \(574,000 and estimated direct labor costs of \)410,000. Job 423 was completed and shipped on April 3.

Requirements

1. Prepare a job cost record for Job 423. Calculate the predetermined overhead allocation rate (round to two decimal places); then allocate manufacturing overhead to the job.

2. Journalize in summary form the requisition of direct materials and the assignment of direct labor and the allocation of manufacturing overhead to Job 423. Wages are not yet paid.

3. Journalize completion of the job and the sale of the 6,000 DVDs on account.

Step-by-Step Solution

Answer

1. The unit cost of the product as per the job cost record for job no. 423 is $0.38 and the predetermined overhead allocation rate is 140%, and the amount of allocated overhead to the job is $644.

 

2. Journal entries to record the requisition of direct materials, assignment of direct labor, and the allocation of manufacturing overhead.

Date	Particulars	Debit ($)	Credit ($)
1.	Work-in-process inventory	1,167
	Raw material inventory		1,167
2.	Work-in-process inventory	460
	Wages payable		460
3.	Work-in-process inventory	644
	Manufacturing overhead		644

3. Journal entries to record the completion of job and sale of job

Date	Particulars	Debit ($)	Credit ($)
1.	Finished goods inventory	1,201
	Work-in-process inventory		1,201
2.	Accounts receivable (6,000 x $1.20)	7,200
	Sales revenue		7,200
3.	Cost of goods sold	4,895
	Finished goods inventory		4,895

Step 1: Meaning of Job Cost Record

The job cost record is prepared by a company to show the unit cost of the product manufactured by the company. It is prepared by using the job order costing system.

Step 2: Job cost record of Job no. 423

Job cost record Job Number: 423 Customer: Paradigm Picture Job Description  : 6,000 DVDs
Direct materials			Direct Labor			Manufacturing overhead
Date	Requisition no.	Amount	Date	Labor time record number	Amount	Date	Rate	Amount
4/02	63	341	4/02	655	160	4/03	140% of direct labor cost	644
4/02	64	725	4/03	656	300
4/03	74	135
Total		1201	Total		490	Total		644
Cost summary             Direct material                                  $1,201             Direct labor                                         460             Manufacturing overhead                    644 Total cost                                                       $2,305 Divided by No. of units produced                 6,000 Unit cost                                                               $0.38

Step 3: Predetermined overhead allocation rate

$\begin{array}{c}\mathrm{Predetermined} \mathrm{over} \mathrm{head} \mathrm{allocation} \mathrm{rate}=\frac{{\displaystyle \mathrm{Estimated} \mathrm{overhead}}}{{\displaystyle \mathrm{Estimated} \mathrm{direct} \mathrm{labor} \mathrm{cost}}}\\ =\frac{\mathrm{\$}574,000}{\mathrm{\$}410,000}\\ =140\mathrm{\%}\end{array}$

Step 4: Allocated manufacturing overhead cost

$\begin{array}{c}\mathrm{Allocated} \mathrm{manufacturing} \mathrm{overhead} \mathrm{cost}=\mathrm{Predetermined} \mathrm{overhead} \mathrm{allocation} \mathrm{rate}\times \mathrm{Actua} \mathrm{ldirect} \mathrm{labor} \mathrm{cost}\\ =140\mathrm{\%}\times \mathrm{\$}460\\ =\mathrm{\$}644\end{array}$

Step 5: The raw material inventory used in the manufacturing process

$\begin{array}{c}\mathrm{Raw} \mathrm{material} \mathrm{inventory} \mathrm{used}=\mathrm{Cost} \mathrm{of} \mathrm{material} \mathrm{requisition} \mathrm{no}.63+\mathrm{Cost} \mathrm{of} \mathrm{material} \mathrm{requisition} \mathrm{no}.64+\mathrm{Cost} \mathrm{of} \mathrm{material} \mathrm{requisition} \mathrm{no}.74\\ =\mathrm{\$}341+\mathrm{\$}725+\mathrm{\$}135\\ =\mathrm{\$}1,201\end{array}$

Step 6: The wages incurred in manufacturing

$\begin{array}{c}\mathrm{Wages}=\mathrm{Labor} \mathrm{cost} \mathrm{of} \mathrm{record} \mathrm{no}.655+\mathrm{Labor} \mathrm{cost} \mathrm{of} \mathrm{record} \mathrm{no}.656\\ =\mathrm{\$}160+\mathrm{\$}300\\ =\mathrm{\$}460\end{array}$

Step 7: Cost of manufacturing

$\begin{array}{c}\mathrm{Cost} \mathrm{of} \mathrm{manufacturing}=\mathrm{Direct} \mathrm{material}+\mathrm{Direct} \mathrm{labor}+\mathrm{Manufacturing} \mathrm{overhead}\\ =\mathrm{\$}1,201+\mathrm{\$}460+\mathrm{\$}644\\ =\mathrm{\$}2,305\end{array}$