Q34PGB - Horngren'S Financial And Managerial Accounting

Question

Sutherland Manufacturing makes carrying cases for portable electronic devices. Its costing records yield the following information:

Job No.	Date			Total cost of Job at October 31	Total manufacturing costs added in November
	Started	Finished	Sold
1	10/03	10/12	10/13	\(1,400
2	10/03	10/30	11/01	1,900
3	10/17	11/24	11/27	1,000	\)1,100
4	10/29	11/29	12/03	600	1,400
5	11/08	11/12	11/14		750
6	11/23	12/06	12/09		1,100

Requirements

1. Which type of costing system is Sutherland using? What piece of data did you base your answer on?

2. Use the dates in the table to identify the status of each job at October 31 and November 30. Compute Sutherland’s account balances at October 31 for Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold. Compute, by job, account balances at November 30 for Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold.

3. Prepare journal entries to record the transfer of completed jobs from Work-in-Process Inventory to Finished Goods Inventory for October and November.

4. Record the sale of Job 3 for $2,200 on account.

5. What is the gross profit for Job 3?

 

Step-by-Step Solution

Answer

1. Sutherland manufacturing uses the job order costing system to calculate each job’s cost because the total cost of each job is different. The companies working on a job basis determine the cost on a different job type basis. Hence, the cost is determined by the job order costing system.

2. The status of each job as on October 31

Job No.	Started	Finished	Sold	Status as on October 31
1.	10/03	10/12	10/13	Sold
2.	10/03	10/30	11/01	Finished
3.	10/17	11/24	11/27	Work in process
4.	10/29	11/29	12/03	Work in process
5.	11/08	11/12	11/14	Not started
6.	11/23	12/06	12/09	Not started

 

The account balance of WIP inventory, finished goods inventory, and the cost of goods sold as on October,31

Particulars	Amount ($) as on October 31
Work-in-process inventory	$1,600
Finished goods inventory	$1,900
Cost of goods sold	$1,400

 

The account balance of WIP inventory, finished goods inventory and the cost of goods sold as on November, 30

Particulars	Amount ($) as on November 30
Work-in-process inventory	$1,100
Finished goods inventory	$2,000
Cost of goods sold	$6,150

 

3. Journal entries to record the transfers

Date	Particulars	Debit ($)	Credit ($)
October 31	Finished goods inventory	1,900
	Work-in-process inventory		1,900

 

Date	Particulars	Debit ($)	Credit ($)
November 30	Finished goods inventory	2,000
	Work-in-process inventory		2,000

 

4. Journal entries to record the transfers

Date	Particulars	Debit ($)	Credit ($)
1.	Account receivable	2,200
	Sales revenue		2,200
2.	Cost of goods sold	2,100
	Finished goods inventory		2,100

 

5. The Gross profit for Job no. 3 is $100

Step 1: Meaning of Job Order Costing System

The company uses a job order costing system to compute the total cost of the products manufactured by the company. This costing method is used by the companies manufacturing-specific or unique products.

Step 2: Work-in-process inventory as on October 31

$\begin{array}{c}\mathrm{Work}-\mathrm{in}-\mathrm{process} \mathrm{inventory}=\mathrm{Total} \mathrm{costof} \mathrm{Job} \mathrm{No}.3+\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.4\\ =\mathrm{\$}1,000+\mathrm{\$}600\\ =\mathrm{\$}1,600\end{array}$

Job no. 3 and 4 is not completed and not sold till October 31. Hence, the total cost of both the job is considered as the WIP inventory.

Step 3: Finished goods inventory as on October 31

$\begin{array}{c}\mathrm{Finished} \mathrm{inventory}=\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.2\\ =\mathrm{\$}1,900\end{array}$

Job no. 2 is completed till October 31 but not sold. Hence, only job no. 2 is considered for finished goods inventory.

Step 4: Cost of goods sold as on October 31

$\begin{array}{c}\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}=\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{no}.1\\ =\mathrm{\$}1,400\end{array}$

Only job no, 1 is sold before October 31. Hence, only it is considered for calculating the cost of goods sold.

Step 5: Work-in-process inventory as on November 31

$\begin{array}{c}\mathrm{Work}-\mathrm{in}-\mathrm{process} \mathrm{inventory}=\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.6\\ =\mathrm{\$}1,100\end{array}$

Out of all the jobs, only job no. 6 is under processing as on November 31. As it was completed on 12/09.

Step 6: Finished goods inventory as on November 31

$\begin{array}{c}\mathrm{Finished} \mathrm{inventory}=\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.4 \mathrm{In} \mathrm{october}+\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.4 \mathrm{In} \mathrm{november}\\ =\mathrm{\$}600+\mathrm{\$}1,400\\ =\mathrm{\$}2,000\end{array}$

Job no. 4 was completed on 11/29 and sold in December. Hence, the total cost of Job no. 4 is considered while computing the value of finished goods inventory.

Step 7: Cost of goods sold as on November 31

$\begin{array}{c}\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}=\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{no}.1+\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.2+\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.3+\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.5\\ =\mathrm{\$}1,400+\mathrm{\$}1,900+\left(\mathrm{\$}1,000+\mathrm{\$}1,100\right)+\mathrm{\$}750\\ =\mathrm{\$}6,150\end{array}$

Job no. 1, 2, 3, and 5 are sold till November 30. Hence, the total cost of these jobs is considered as the cost of goods sold.

Step 8: Cost of goods sold for Job no. 3

$\begin{array}{c}\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}=\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.3 \mathrm{till} \mathrm{October} 31+\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{Job} \mathrm{No}.3 \mathrm{in} \mathrm{November}\\ =\mathrm{\$}1,000+\mathrm{\$}1,100\\ =\mathrm{\$}2,100\end{array}$

Step 9: Gross profit

$\begin{array}{c}\mathrm{Gross} \mathrm{profit}=\mathrm{Sales}-\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}\\ =\mathrm{\$}2,200-\mathrm{\$}2,100\\ =\mathrm{\$}100\end{array}$